
Class _JdGXn5 

Book ' 5 5 S 

Coppglrt W^ 



COPYRIGHT DEPOSIT. 



THE FALLACIES OF 
LIFE INSURANCE 

AN EXPLANATION OF THE MOST POPULAR 

FORMS OF LEGAL RESERVE LIFE 

INSURANCE POLICIES 



s«r 



ILLUSTRATIONS SHOWING PLANS FOR THE REFORM- 

ATION OF OBJECTIONABLE POLICIES WITHOUT 

LOSS TO THE INSURED OR REDUCTION 

OF THE DEATH CLAIM 



HOW TO PURCHASE LIFE INSURANCE 



BY 

W. R. SCUDDER 

Life Insurance Expert 

CHICAGO 



HGr8 77 2 



COPYRIGHT, 1913 

BY 

W. R. SCUDDER, Chicago 



©aA357556 



CONTENTS. 



CHAPTER I. 
Preamble 1 

Article I — Object — 2 Not a Criticism on True Life 
Insurance — 3 Education of the Public — 4 Inconsistent 
Arguments and Misleading Statements — 5 Objection- 
able Forms of Policies Issued — 6 No Small Task — 7 
Where Injustices Occur — 8 Misguided Policy Holders 
— 9 General Understanding of Life Insurance Policies 
— 10 Advantages and Disadvantages — 11 Investment 
Features for Fire Insurance Policies — 12 Some Argu- 
ments Used by Insurance Companies — 13 Future Com- 
petency — 14 Insurance Company Not a Savings Bank 
— 15 Savings Not Eeturned Where Insured Dies — 16 
Proper Education for the Public — 17 Misleading Argu- 
ments by Life Insurance Agents — 18 Money Value — 
19 Policy to Be Selected by Insured — 20 Best Invest- 
ment. 

CHAPTER II. 

Scientific Principles of Life Insurance 15 

21 Death Rate— 22 How Mortality Tables Are Es- 
tablished — 23 Premiums Based on Principal Plus In- 
terest Worth — 24 Investment of Life Insurance Funds 
— 25 Two Important Factors in Calculating Life In- 
surance — 26 Compound Interest — 27 One ($1) Dollar 
Invested Per Annum in Advance. 

CHAPTER III. 
General Information 20 

28 The Two Principles of Life Insurance — 29 Assess- 
ment or Fraternal Insurance — 30 Premiums Paid to 
Fraternal Organizations — 31 Fraternal Insurance Dis- 



credited — 32 More Fraternal Insurance Would Be Car- 
ried — 33 Any Benefits to Be Received Under a Life In- 
surance Policy — 34 Illustration — 35 Table '^A'' Assess- 
ment Vs. Legal Eeserve Ordinary Life — 36 Table ^'B" 
Assessment Vs. Legal Eeserve Twenty Payment Life 
— 37 Fraternal Organizations Can Be Made Secure — 
38 Legal Reserve or Old Line Life Insurance — 39 
Young Legal Reserve Companies Are Safe — 40 New 
Policy Forms- — 41 The Coupon Policy — 42 Future Re- 
sults — 43 Few Policy Holders Know When They Are 
Receiving a Fair and Equitable Deal — 44 Owing to 
Strong Competition Many Objectionable Policies Are 
Issued — 45 Opinion of Judge McCormick — 46 Do Com- 
panies Take Advantage of the Beneficiary? — 47 The 
Stronger Vs. the Weaker — 48 Why Should the Insured 
Not Understand His Policy? — 49 Misleading Impres- 
sions — 50 AVhere Losses to Policy Holders Occur — 51 
Lapsed Premiums Are Losses to the Policy Holders 
and Profits to the Insurance Companies — 52 Illustra- 
tion — 53 Insured Should Know Beneficiary Will Be 
Protected — 54 State Laws Cannot Always Protect the 
Policy Holder — 55 Policy Holders Must Protect Them- 
selves — 56 Company Not Always to Blame — 57 Unfore- 
seen Contingencies May Arise — 58 Legal Reserve Pro- 
tected by Law — 59 Anti-Discrimination Laws do Not 
Protect Insured — 60 Illustration — 61 Adverse Laws 
are Detrimental to the Company — 62 It Will Be Pos- 
sible to Eliminate Evils — 63 Life Insurance Very Little 
Understood — 64 Company Will Generally Issue Policy 
as Applied For — 65 Insured Not Always Protected by 
Reserve Deposit Law — 66 Where Greatest Losses Oc- 
cur to the Insured — 67 Read Your Policy and See if 
Tou Understand It — 68 Great Proven Worth Should 
Not Be Used as a Cloak — 69 Discriminating Policies 
Should Never Be Purchased — 70 A Lifetime Study Not 
Necessary — 71 No Investment in Life Insurance for the 
Insured — 72 Life Insurance Company Not a Savings 



III. 

Bank — 73 Proper Education Will Prevent Evils — 74 
Officers and Agents Are to Blame. 

Concise Information. 

75 Life Insurance — 76 Policy a Contract — 77 Death 
Claim — 78 The Insured's Own Cash Is Not Insurance — 
79 Life Insurance Never Paid to the Insured — 80 Any 
Cash Value Insured's Own Money — 81 Insured May 
Lose Own Cash by Death — 82 Insurance Company Not 
a Producing Organization or a Bank. 

CHAPTER IV. 

Basis for Determining Premium Rates for the Com- 
pany and Net Cost to the Insured 48 

83 Contract — 84 Time Important to Company and 
Insured— 85 Calculation of Premiums — 86 Insured 
Must Pay the Increasing Cost — 87 Insured is Generally 
Misinformed — 88 American Table of Mortality Used — 
89 It Is Not Plain How Losses Occur — 90 Cost Easily 
Calculated by Company — 91 Interest Used in Calculat- 
ing Premiums — 92 Cost of Insurance to Policy Holder 
— 93 Interest "Worth Should Be Considered by Pur- 
chaser — 94 Premiums to Be Paid — 95 Insured Should 
Take No Chance — 96 High Premiums Do Not Reduce 
Actual Cost to Insured — 97 Misleading Illustration 
Shown by Life Insurance Agents — 98 Correct Illustra- 
tion — 99 Investment Element of Premium Is Lost 
Where Insured Dies — 100 Limited Premium Policies 
Are Single Premium Insurance — 101 Illustration — 102 
Participating Vs. Non-Participating — 103 Participating 
insurance — 104 Dividends Over-Estimated — 105 Inves- 
tigation by Armstrong Committee — 106 Investment — 
107 Dividends Are Refund of Overcharge — 108 Misrep- 
resentations Are Being Made — 109 Unbusinesslike 
Methods Adopted — 110 Unexpected Admissions — 111 
Term ''Dividends" Not Used by Some Companies — 



IV. 

112 A New Company Every Year — 113 Element of 
''Dividends'' Uncertain — 114 Dividends Are Taxable 
— 115 Cost of Insurance Rednced— 116 Deferred Divi- 
dends — 117 New Epoch in History of Life Insurance — 
118 The Agents' Arguments — 119 Overcharges Due to 
Lack of Knowledge — 120 Non-Participating Premiums 
—121 Why Not Receive Large '' Dividends "?— 122 
Suggestion — 123 The Best Investment. 

CHAPTER V. 
One Year Term or Step-Rate Policy. 73 

124 Analysis — 125 Net Premium Required — 126 Pol- 
icy Expires at End of One Year — 127 Mortality and 
Managing Expense — 128 Cost of One Year Term Insur- 
ance Used as a Basis — 129 One Year Term or Step- 
Rate Policy Unpopular — 130 Actual Insurance Reduced 
Where Reserves Are Maintained — 131 Illustration — 
132 Plan for Ascertaining Actual Insurance in Death 
Claim — 133 Renewable Term Policy — 134 Term Pol- 
icies Generally Have No Surrender Values — 135 Death 
Benefit Fund — 136 Level Premium Does Not Reduce 
Actual Cost — 137 High Premiums Destroy Actual In- 
surance in Death Claim — 138 Both Legal Reserve and 
Assessment Policies Eventually Lose Their Insurance 
Worth — 139 Assessment Insurance Could Be Made 
Popular. 

CHAPTER VI. 

Twenty Year Term Policy 82 

140 Analysis— 141 Cash Value— 142 Death Claim 
Practically All Insurance Under Any Term Form of 
Policy — 143 Five, Ten and Fifteen Year Term Policies 
— 144 Twenty Year Renewable Term — 145 Renewable 
Term Insurance Should Always Be Purchased — 146 
Renewable Term Is One Form of Permanent Insurance 
— 147 One of the Many Injustices — 148 Dividend De- 
lusion — 149 Company Requires Large Expense Loading 
to Pay Large ''Dividends." 



CHAPTER VII. 

Twenty Year Endowment Policy 90 

150 Analysis — 151 Illustration of Account to End of 
the Fifth Year — 152 Illustration of Account to End of 
the Tenth Year — 153 Illustration of Account to End 
of the Fifteenth Year — 154 Overcharges Reduce the 
Death Claim — 155 One Year Term Used as Basis for 
Calculating Cost — 156 Illustration — 157 Illustration 
Where Policies Are Written on Deferred Dividend 
Plan — 158 Where Deferred Dividends Are Paid Quin- 
quennially — 159 Accrued Dividends^ — 160 Premium 
Payments Should Cease After Fifth Year Where In- 
sured's Health Is Impaired — 161 Illustration — 162 The 
Insured Has the Privilege of Renewing the Policy — 163 
Companies Advise the Insured Not to Surrender Pol- 
icy — 164 Do Companies Always Deal Fairly? — 165 Pol- 
icy Should At All Times Meet the Needs of the Insured 
— 166 Policies May Be Exchanged Without Loss to the 
Insured — 167 Illustration — 168 When Insurance Should 
Be Purchased — 169 Plan for Reformation Where In- 
sured Is in Poor Health — 170 Endowment One of the 
Most Objectionable Forms of Insurance — 171 Ten and 
Fifteen Year Endowment — 172 ''Five Per Cent. Gold 
Bond''— 173 Why Not Prohibit All Adverse Policies! 
— 174 How Five Per Cent. Is Paid — 175 Illustration — 
176 Vast Sums Lost by Policy Holders— 177 Illustra- 
tion — 178 Reason for Purchasing ''Five Per Cent. Gold 
Bond." 

CHAPTER VIII. 

Whole Life Continuous Premium Policy 113 

179 — Analysis — 180 Permanent Insurance — 181 Pre- 
mium Basis — 182 Illustration — 183 Level Premium 
Basis — 184 Net Premiums Required Plus ^'Dividend" 
Contributions — 185 Dividend Element of Premium — 
186 Dividend Illustration — 187 Cost of Insurance to 
Insured — 188 Ordinary Life Vs. Limited Payment Life 



VI. 

— 189 Ordinary Life Policy Can Be Exchanged — 190 
Illustration— 191 ^Taid-up Policy'' Not Paid-up. 

CHAPTER IX. 
Single Premium Whole Life Policy 128 

192 — Analysis — 193 Single Premium Insurance — 194 
Another Plan for Single Premium Insurance — 195 A 
^^ Paid-up Policy'' Is Not. 

CHAPTER X. 
Twenty Payment Life Policy 133 

196 — Analysis — 197 Illustration of Account to End 
of the Sixth Year — 198 — Illustration of Account to 
End of the Tenth Year — 199 Illustration of Account to 
End of the Fifteenth Year — 200 Twenty Payment Life 
— 201 Possible Lifetime, Age 96 — 202 Level Premium 
—203 Premiums and Their Results— 204 ^Taid-up" In- 
surance — 205 Excess Reserve May Be Also Lost by 
Death— 206 ^^ Deferred Dividends" 207— Policy Loans 
Are Not Profitable to the Insured — 208 Illustration — 
209 Strong Competition— 210 Should All Adverse Pol- 
icies Be Surrendered? — 211 Illustration for Sixth Year 
— 212 Illustration for Tenth Year — 213 Illustration for 
Fifteenth Year — 214 Ordinary Life Policies Can Be 
Converted Any Year^215 Above Policy Can Be Sur- 
rendered Without Loss — 216 Single Premium Insurance 
— 217 Illustration — 218 Ten Payment Single Premium 
Plan — 219 Fifteen Payment Single Premium Plan — 
220 Insurance Must Be Paid For— 221 Different Inter- 
pretations — 222 Illustration — 223 Extra Features Must 
Be Paid For— 224 Twenty Payment Whole Life ^^Five 
Per Cent. Gold Bond"— 225 ^^Twenty-eight Year En- 
doAvment" — 226 Whole Life Twenty Payment Return 
Premium Policy — 227 Whole Life Twenty Payment 
Guaranteed Premium Reduction Policy. 



VII. 



CHAPTER XI. 
''Annuity or Instalment Insurance'' 164 

228 ''Annuity or Instalment Insurance" — 229 May 
Be Applied to Any Form of Policy — 230 Insurance 
Terminates Upon the Death of the Insured — 231 An- 
nuity Plan for Paying Death Claim — 232 Annuity Plan 
May Be Applied to All Policy Forms — 233 Illustration 
— 234 Three and One-Half Per Cent. Basis Pays Greater 
Annuity Than Three Per Cent.— 235 Annuity May Be 
Paid to One or More Beneficiaries — 236 Limited An- 
nuity Plan — 237 Continuous Annuity Plan — 238 Age of 
Beneficiary Considered — 239 Beneficiary Should Pur- 
chase Annuity — 240 Excessive Premiums Sometimes 
Paid — 241 A Fair and Equitable Premium. 

CHAPTER XII. 
Summary 172 

242 General Information — 243 Cost as Applied to the 
Company and Insured — 244 One Tear Term Used as a 
Basis — 245 ' ' Investment Item ' ^ — 246 Life Insurance 
Affords Protection Only — 247 The Dividing Line — 248 
Temporary Insurance — 249 Permanent Insurance — 250 
Ordinary Life Form Not Eeally an Investment — 251 
Non-Participating Eate Used for Illustration — 252 "In- 
vestment" Illustrated — 253 A Better Plan for Invest- 
ment — 254 High-Priced Policies Do Not Afford a Le- 
gitimate Investment — 255 Deferred Dividends Not Pop- 
ular — 256 Why Should Deferred Dividend Policies Be 
Purchased? — 257 Illustration — 258 Some Injustices 
Finally Discovered — 259 "A" May Protect Himself— 
260 Illustration— 261 Why Should a ''Paid-up" Policy 
Be Purchased?— 262 "B" Purchases an " Investment ' ' 
— 263 Illustration — 264 Life Insurance Companies Are 
Poor Savings Banks — 265 Let the Life Insurance Com- 
panies Run a Savings Bank — 266 Introductory Explan- 
tions — 267 Illustration — 268 Insured Should at Least 
Deposit His Savings in a Savings Bank — 269 Life In- 



VIII. 

surance Business Should Be Eeformed — 270 Company 
and Policy Holder Protected — 271 Another Injustice — 
272 Policy Eeserves Not a Bank Account— 273 ''Safety 
Clause"— 274 Should ''Safety Clause" Policy Be Pur- 
chased? — 275 Insured Should Protect Himself. 

CHAPTER XIII. 
How to Purchase Life Insurance ,206 

. 276 The Selection of a Policy— 277 Cost— 278 Mortal- 
ity Expense Element Destroys "Investment" Feature 
— 279 Don't Use a Life Insurance Company for a Sav- 
ings Bank— 280 Time— 281 Surrender Pee— 282 Ordi- 
nary Life Form May Be Changed to Other Forms — 
283 Adequate Premium — 284 Insured Must Pay for 
Additional or Imaginary Benefits — 285 Net Premiums 
—286 Surrender Values^287 How to Select the Pol- 
icy— 288 How Policies Should Be "Written— 289 Size of 
Company Does Not Necessarily Indicate Strength — 
290 Participating or Non-Participating — 291 Printed 
Statements Should Only Be Accepted— 292 Why Should 
a Charge Be Made for Participation? — 293 Insured 
Should Never Accept Rebates in Any Form— 294 Acts 
Held as Rebating by the Courts — 295 The Companies 
Prohibit Rebating by Their Agents — 296 Purchaser 
Should Not Accept a Special Inducement — 297 Square 
Dealing Best for Company and Insured — 298 Purchaser 
May Prevent a Rejection — 299 Insurance Should Be 
Carried — 300 Insurance Paid by Surviving Policy 
Holders — 301 Cash Surrender Values Should Not Be 
Purchased as They Are Not Insurance. 

CHAPTER XIV. 
Policy Conditions, Privileges and Restrictions .... 220 

302 Premium Payments — 303 Preliminary Term — 304 
Grace Period — 305 Reinstatement — 306 Notices— 307 
Incontestability — 308 Statements, Representations and 
Contract — 309 Age — 310 Agent — 311 Assignment and 



IX. 

Change of Beneficiary — 312 Suicide — 313 Dividends — 
314 Loan — 315 Cash Value or Non-Forfeitable Priv- 
ileges. 

Miscellaneous Policy Conditions. 

316 Eenewable Term— 317 Convertible— 318 Total 
Disability. 

CHAPTEE XV. 

Noted Opinions 235 

319 Opinion of Commissioner of Internal Revenue 
Royal E. Cabell — 320 Extract of Opinion of Judge 
McCormick. 

CHAPTER XVI. 
State Laws Governing Life Insurance Companies . . 246 

321 New York Non-Forfeiture Law — 322 Massachu- 
setts Non-Forfeiture Laws — 323 Indiana Non-Forfeit- 
ure Law — 324 Illinois Non-Forfeiture Law. 

CHAPTER XVII. 
Definitions 270 

325 Definitions and Explanations of words and 
terms used in Life Insurance. 

CHAPTER XVIII. 
Tables , 294 

326 Compound Interest Table — 327 Amount of One 
($1) Dollar Per Annum in Advance in Tears — 328 
Mortality Table — 329 Net and Gross Natural Premiums 
—330 Net Annual Premiums Per $1,000 at Three Per 
Cent.— 331 Net Annual Premiums Per $1,000 at Three 
and One-Half Per cent.— 332 Reserve Values Per $1,000 
Ordinary Life at 3 Per Cent. — 333 Reserve Values Per 
$1,000 Twenty Payment Life at 3 Per cent.— 334 Re- 
serve Values Per $1,000 Ordinary Life at 3^ Per Cent. 
—335 Reserve Values Per $1,000 Twenty Payment Life 
3^ Per cent. 



CHAPTER I 

PREAMBLE 

Article I. Object. 

This book is written for the purpose of giving life 
insurance policy-holders, or the prospective purchasers 
of the same, an opportunity of gaining a thorough 
understanding of their policies, or the policies to be 
purchased, from the buying end of the deal, and if the 
reader v^ill carefully peruse the following pages from 
an unbiased standpoint, the information and instruc- 
tions herein contained may not only save the policy- 
holder a great deal of money in the handling of his 
life insurance, but will give him the satisfaction of 
knowing that he is getting the most for the money 
he is spending for the same. 

2. Not a Criticism on True Life Insurance. 

This work must not be taken as an attack or crit- 
icism on the true principles of life insurance. Life 
insurance is one of our greatest philanthropies, be- 
cause the man of moderate financial means or even 
the poor man, by contributing a small portion of his 
income each year to the life insurance company, is 
able to perpetuate his income which would be lost by 
death, thereby protecting those dependent upon him 
against the loss of his productive worth. 

It is perhaps on account of its great proven and 
almost indispensable value, that officers of the life 
insurance companies have taken advantage of this fact 
and use, as a cloak, this great proven worth to cover 
up gross injustices which are being perpetrated upon 
many of their policy-holders. 



2 FALLACIES OF LIFE INSURANCE. 

3. Education of the Public. 

The life insurance companies for many years have 
expended vast sums of the policy-holders' money in 
educating the public to believe that real and '^ profit- 
able investments" can be obtained by purchasing the 
so-called ''investment policies'' issued by these com- 
panies, and also that by purchasing limited payment 
whole life policies the insured will be able to secure 
his insurance at the smallest cost, and it will be many 
years before this evil will be -entirely eradicated. 

4. Inconsistent Arguments and Misleading Statements. 

"When the officers of the insurance companies or their 
agents are asked why the policies are sold which are 
so detrimental to the financial interests of the policy- 
holders, the general reply is, the public wants them 
or the public is clamoring for these forms of policies; 
that an insurance company is the same as a general 
store, and in order to be successful they must keep in 
stock for sale. The different commodities and at dif- 
ferent prices to meet the demands of the public, the 
same as the proprietor of a general store would keep 
for sale the cheap and also the more expensive shoes, 
hats, clothing or any other commodity to be found in 
this class of stores. 

This principle may be a good one to apply to the 
general store, and will not prove inconsistent to the 
customer, and a good one to apply to the insurance 
company, as far as the company is concerned, but a 
very unprofitable one when applied to the policy- 
holder for this reason, the customer may be justified 
in purchasing the more expensive articles because they 
not only look better, and perhaps fit better, and will 
undoubtedly wear longer, therefore the man who pur- 
chases a $5 pair of shoes instead of a $2 pair, or a $25 
suit of clothes instead of a $10 suit, really gets value 
received, but how does the policy-holder get value re- 



PREAMBLE. 3 

ceived where he purchases the high-costing insurance 
instead of ^ the low-costing? 

Where the insured at age 35 pays the net premium 
of $419.88 for a ^^ paid-up" $1,000 death claim he pays 
for 61 years of insurance or to age 96, whether he is 
going to live to age 96 or not. Supposing he dies the 
first year, he has paid a pretty heavy premium for a 
$1,000 death claim. The ten, fifteen or twenty pay- 
ment whole life policies are slightly modified forms 
of this objectionable form of policy. 

Would the customer at age 35 be justified in contract- 
ing for enough wearing apparel of the store-keeper 
to last him for 61 years, or antil he is 96 years of 
age? Most assuredly not. The chances are more than 
1,000 to one that he would not live to age 96. He 
has only an even chance to live to about age 67. Com- 
petition or an oversupply might force the prices down 
and he would be able to purchase the articles con- 
tracted for at a much lower price in future years. 
There are a great number of reasons why a person 
should not purchase their wearing apparel for so many 
years in advance, and the customer knows at least 
some of the reasons and does not purchase the same in 
that manner. 

There are a great many reasons why a policy-holder 
should not purchase his life insurance for so many 
years in advance, but he does not happen to remem- 
ber any one of the reasons at the time the policy is 
purchased, or perchance does not KNOW of any good 
reason why he should not purchase his life insurance 
in this manner, consequently the single premium life 
insurance policy in some form or other is purchased. 
Perhaps it is on account of the same reason that the 
alleged ^ ^ investment " policies are purchased. 

The policy-holders to a certain extent are not to 
blame for purchasing the objectionable forms of life 
insurance policies. The officers of some of the insur- 
ance companies are to blame for this deplorable con- 



A FALLACIES OF LIFE INSURANCE. 

dition. They have spent millions of dollars belonging 
to the policy-holders in educating the public to believe 
that the high-priced insurance furnishes insurance at 
the smallest cost to the insured, and that real and 
^'profitable investments" may be secured by purchas- 
ing the high-priced forms of investment policies. See 
Article 245. 

The officers of these dividend-paying and invest- 
ment-offering companies are using every possible 
method to thwart the progress of a proper understand- 
ing of the fundamental principles of life insurance by 
the policy-holders and the public. 

It is not uncommon to find notices printed on the 
policies issued by some of the insurance companies, 
stating that ''It is not necessary for the insured or 
the beneficiary to employ the services of any person, 
firm or corporation, in collecting the insurance under 
this policy or in receiving any of its benefits. Time 
and expense will be saved by writing direct to the 
home office, or to the general agency where premium 
payments have been made,'' and should the insured 
accept these instructions and go to the company or its 
agents for any advice desired, he may rest assured 
that he will not receive any information which would 
be detrimental to the financial interests of the com- 
pany. 

If the insurance company always deals fairly with 
the beneficiaries under life insurance policies, why is 
it necessary for so many of the beneficiaries to be 
compelled to appeal to the courts to receive justice 
from the companies? Perhaps the best illustration of 
this point may be found in the opinion of Judge 
McCormick, in the case of the Merchants Life Associa- 
tion vs. Yoakum, Article 320. 

A great many companies are constantly instructing 
their policy-holders by personal letter that no instruc- 
tions or advice should be accepted from anyone, ex- 
cepting the company or its agents, and as long as the 



PREAMBLE. 5 

policy-holders persist in following these instructions, 
just so long will losses occur to the insured. 

5. Objectionable Forms of Policies Issued. 

There are several objectionable forms of policies 
now being issued by some of the life insurance com- 
panies which are not consistent with good business 
principles, and these policies are being purchased by 
the public, because the true principles therein con- 
tained are not properly under?!tood. 

The author is of the opinion that by giving a clear 
and comprehensive explanation of the future results 
to be obtained under these objectionable forms of pol- 
icies they will not be purchased. There are many 
forms of policies which apparently offer alluring re- 
sults as an ^ investment, ' ' and it is remarkable that 
such strong argument can be produced by the agents 
selling the same, to prove their contention that they 
actually afford not only a substantial, but a lucrative 
'^investment." 

6. No Small Task. 

The author realizes that it is no small task to place 
in book form argument or explanations which will con- 
vince the policy-holders that discrimination is being 
practiced and injustices are being perpetrated upon 
the policy-holders by the life insurance companies. 
Perhaps the most positive proof of this assertion may 
be found by referring to an opinion rendered by Com- 
missioner of Internal Revenue Royal E. Cabell of an 
act of August 5, 1909, regarding dividends of life in- 
surance companies, which is given in full in Article 
319. 

7. Where Injustices Occur. 

If the reader really wishes to learn where these dis- 
criminations and injustices occur, by setting aside all 
prejudice and placing the mind in a receptive mood, 



6 FALLACIES OF LIFE INSURANCE. 

the illustrations and comparisons herein contained will 
be clearly understood, thereby proving conclusively 
that these adverse conditions DO exist, and when the 
adverse conditions are understood, it is an easy matter 
to avoid them. 

8. Misguided Policy-Holders. 

While it may not be possible for all the misguided 
policy-holders to secure this MUCH NEEDED infor- 
mation, yet the author feels that if he has extended 
a helping hand to a small number, comparatively 
speaking, he has done well. As it is quite probable 
that a large number of policy-holders and prospective 
purchasers of the same will take advantage of the 
information herein contained, and apply the same to 
the reformation of their present policies, and to the 
purchase of new policies, it is only fair to presume that 
this work will be severely criticised by the unscrup- 
ulous agents of some of the life insurance companies, 
and as it will be impossible for the author to be pres- 
ent to meet these criticisms, it will be necessary to 
simplify this work to the fullest extent to enable the 
reader to quickly comprehend the information given 
regarding the point at issue, which will enable him 
to decide whether or not the criticism is justifiable. 

9. General Understanding of Life Insurance Policies. 

All complicated mathematical formulas or technical- 
ities admissible of different constructions and perhaps 
criticisms by experts, will be eliminated in the follow- 
ing pages, when possible, even to the extent of pos- 
sible infringement upon the accuracy of some specific 
point, if necessary, to illustrate a point as applied in 
a general way. In other words, it is not the intention 
of the author to give the public an education in actu- 
arial science, but to give a general understanding of 
the results of the principles of life insurance from the 
insured 's end of the deal. 



PREAMBLE. 7 

10. Advantages and Disadvantages. 

Having served fifteen years in the field as a life 
insurance solicitor the author has been brought in 
personal contact with many cases where life insurance 
has demonstrated its great ADVANTAGES, and after 
devoting five years to the study of the scientific prin- 
ciples used in establishing or calculating premium 
rates, the author has discovered many instances where- 
certain forms of policies produce great DISADVAN- 
TAGES. Disadvantages mainly occur where the pol- 
icy-holder is led to believe that under the different 
forms of limited payment policies the insured is 
enabled to carry his insurance at the smallest net cost 
on account of the cessation of premium payments after 
a specified number of years, and also that under cer- 
tain forms of policies in addition to carrying the pro- 
tection the policy will afford the insured a good ^in- 
vestment." 

11. Investment Features for Fire Insurance Policies. 

It would be just as consistent for the fire insurance 
companies to charge an excess premium over that 
actually required to carry the risk and give cash sur- 
render values, paid-up values and ^'dividends'' as it 
is for the life insurance companies to do so. Perhaps 
the reason this is not done is, because the fire insur- 
ance companies have not had millions of dollars be- 
longing to the policy-holders to squander in educat- 
ing the public to believe that the plan adopted by the 
life insurance companies would be profitable to their 
policy-holders. 

If it is not good business prudence to pay for your 
fire insurance a great number of years in advance, 
thereby paying for insurance which may NEVER be 
needed, why should it be prudent to apply this prin- 
ciple in the purchase of life insurance? Your house 
may never burn, but you are sure to die. The chances 



8 FALLACIES OF LIFE INSURANCE. 

for your dying are greater than the chances are that 
the house may burn. 

It would be a great deal more consistent with good 
sound business principles to apply the principles of 
saving, ''investment'' and ''dividends" to the fire in- 
surance policy than the life insurance policy for this 
reason, any excess premium paid to the life insurance 
company to be returned as "dividends," cash surren- 
der values or "investments,'' at some future time, are 
always subjected to loss by death, and we can not 
prevent death. If this same excess premium charge 
was paid on the fire insurance policy the possibility 
of losing this excess money can be safeguarded, be- 
cause it IS possible to prevent a fire. 

The proper plan to adopt, where an "investment" 
is desired through the purchase of an insurance pol- 
icy, would be to build a small fireproof building, have 
it insured on the twenty year endowment plan by pay- 
ing to the company enough money in excess of the 
actual cost of the fire protection yearly to mature the 
endowment at the end of twenty years and pay a 
good, substantial "dividend" (if you wish large "divi- 
dends" pay in a large amount to be returned as "divi- 
dends"), and by adopting this plan the insured will 
be taking no chances of losing the excess money so 
paid for the endowment in the meantime. Fire insur- 
ance is purchased for PEOTECTION, and life insur- 
ance should be purchased for PROTECTION. 

12. Some Arguments Used By Insurance Companies. 

Another point that deserves consideration whichx is 
used by the life insurance companies in their argu- 
ments to induce the insured to purchase the alleged 
"investment" policies is, that the life insurance com- 
panies promulgate thrift on the part of the policy- 
holders ; that policy-holders are induced to save money 
by purchasing "investment" policies which they would 
not otherwise save, or that on account of having an 



PREAMBLE. 9 

obligation to meet yearly they will meet this obliga- 
tion, where the money required for the premiums, un- 
less paid to the insurance companies, would be other- 
wise squandered in riotous or extravagant living, or 
to more explicit the company should be selected to 
act as '^guardian" over its shiftless, money-spending, 
never saving policy-holders. At a glance this might 
be considered a very commendable act on the part of 
the life insurance companies, but let us anaylze this 
point and see if the insurance companies do really act 
as a trustworthy ^^ guardian'' of the policy-holders' 
money, as reviewed from a substantial sound princi- 
pled basis. One of the strong inducements set forth 
to persuade the prospective purchaser of life insur- 
ance to purchase the high-priced so-called ^invest- 
ment" policy is, that the insured can secure a loan 
from the company on the sole security of the policy 
after the second or third premium has been paid. In 
other words, this excess money paid in for ^invest- 
ment" may be secured from the company at any time 
after the second or third annual premium has been 
paid. All that is required of the insured is, that by 
sending the policy to the company properly endorsed, 
he can secure the loan of his OWN MONEY by pay- 
ing the company five or six per cent, interest in ad- 
vance for the use of the same, and if the insured will 
continue paying the interest annually for his own 
money, it is not necessary to repay the amount ^^ bor- 
rowed," the company being amply secured. Should 
death occur before the loan is repaid the company 
would simply deduct the amount advanced or loaned, 
from the death claim, and the beneficiary or estate 
would receive the balance; or, should the insured wish 
to surrender the policy, any time before the loan is 
repaid, the amount advanced or loaned would be de- 
ducted from the cash value of the policy. 



10 FALLACIES OP LIFE INSURANCE. 

13. Future Competency. 

Is it not fair to presume that should the '* spend- 
thrift" squander all of the money he had except that 
which he had deposited with the insurance company' 
to secure his ^^ investment policy," that he would se- 
cure this money which is so accessible at all times and 
squander it also? Would the ''spendthrift" seeking 
a guardian to care for his savings consider it prudent 
on his part to select a guardian who would accept his 
savings, deduct the amount of the fee charged for 
acting as guardian, and hold out as an inducement for 
being appointed guardian that the insured could with- 
draw the balance of his savings at any time, if he so 
desired? Perhaps the purchase of the ''investment" 
policy would not materially affect the financial condi- 
tion of the "spendthrift," because if he did not give 
the money to the insurance company it would have 
otherwise been squandered, but how would this "in- 
vestment" policy apply to the hard-working, indus- 
trious policy-holder, who desired protection for those 
dependent upon him and who wished to accumulate a 
competency which would afford protection against pov- 
erty or want in old age should he live? 

"Would it not be gross mismanagement on his part 
to place his savings for years in the hands of the in- 
surance company to be lost to his family or estate 
should his death occur before the end of the endow- 
ment period? If he had carried his insurance in an 
insurance company, and deposited his savings in a 
bank or trust company, should his death occur the 
insurance company would pay the death claim just 
the same and his family would also have the savings. 
It is not possible to combine the principle of life in- 
surance and the principle of savings under the same 
contract without detriment to one or the other of them. 



PREAMBLE. 11 

14. Insurance Company Not a Savings Bank. 

The benefits to be derived from the insurance ele- 
ment of the policy can only be obtained upon the death 
of the insured. In order to receive benefits to be de- 
rived from the insurance element of the policy the 
insured must live. If the insured is going to live for 
a specified number of years to receive the benefits of 
his savings he certainly does not need life insurance, 
and all money paid for the insurance element will be 
lost to the insured. If the insured is going to die 
within a specified time, it is unwise to pay money to 
the insurance company in excess of the actual cost of 
the insurance to create an endowment which will be 
lost to the insured's estate in case of death. Where 
the insured purchases a life insurance policy contain- 
ing the element of savings or ^^ investment," the in- 
sured is bound to lose whether he lives or dies. 

15. Savings Not Returned Where Insured Dies. 

Under the present form of savings or 'investment" 
policies if the insured desires to cancel or surrender 
the policy at any time, generally after the third pre- 
mium has been paid, the company will return the 
greater portion of the premium paid, yet if the insured 
dies the company retains this element to help pay the 
death claim. "Why should not this excess premium 
paid, to create the endowment, be returned to the ben- 
eficiary in addition to the original death claim upon 
the death of the insured? 

16. Proper Education for the Public. 

If the policy-holders' money which is now being 
used by the life insurance companies to educate the 
public to believe they are securing an '^ investment" 
under the present forms of the alleged '^ investment" 
policies, was used to educate the public HOW TO 
CARRY life insurance and also how to secure substan- 
tial and legitimate investments there would be mil- 



12 FALLACIES OF LIFE INSURANCE. 

lions of dollars saved yearly to the purchasers of life 
insurance. The life insurance company was never in- 
tended to compete or take the place of our banks or 
trust companies. 

17. Misleading Arguments by Life Insurance Agents. 

The arguments which are now being used by some 
of the agents of the life insurance companies in so- 
liciting the prospective purchaser of life insurance are 
too often detrimental to the banking institutions. The 
agent seldom loses an opportunity to impress upon the 
mind of his prospect that he ONLY receives three per 
cent, interest upon his savings when deposited in the 
savings bank, and also that the bank is liable to fail 
at any time and the insurance companies never fail. 
Would it not be better for the agent when soliciting 
the prospective purchaser, to illustrate the true 
principles of life insurance, which is, protection for 
those dependent upon him; that this protection should 
be purchased at the smallest cost; that greater invest- 
ments will be derived from his life insurance policy 
where the smaller premiums are paid, and to deposit 
his savings in some reliable trust company or bank or 
invest the same in good, substantial bonds paying at 
least five per cent., and by depositing or investing his 
savings in this manner he wouid not only be receiving 
the interest for the use of his money, but he would not 
be jeopardizing the same to loss by death in the mean- 
time? The average man is no more liable to lose his 
money through the failure of the bank or trust com- 
pany in which he has deposited the same, or any bonds 
he may have purchased, than he is to lose his savings 
by death when deposited with a life insurance com- 
pany. 

The life insurance agent never loses the opportunity 
to impress upon the mind of the prospective purchaser 
of life insurance, that the insurance company can in- 
vest his money for him to a better advantage than 



PREAMBLE 13 

he can ; that it is not possible for the insured to invest 
a small amount of money advantageously ; that the only 
thing left for him to do is to deposit it with some bank 
or trust company and only receive three per cent, for 
it, where, as a matter of fact, it is very easy to realize 
handsome ^^ dividends "on very small sums of money, 
if the same is simply used to purchase the commodities 
or the necessities of life in large quantities, which will 
yield handsome profits. If a person has so much 
money that it is impossible to keep it invested in mort- 
gages or bonds paying at least five per cent, and it is 
necessary for him to deposit the money in some bank 
for safe keeping, ONLY in this case should the value 
of money be placed at three per cent. 

18. Money Value. 

' The money value basis used for calculating future re- 
sults, in the following illustrations is placed at five per 
cent, for two reasons : FIRST, any person capable of 
earning money can invest the same and realize at least 
five per cent, upon the investment, and it is only where 
the money is invested in stocks or enterprises which 
promise a fabulous^* dividend" that losses occur to the 
investor. It is very seldom that a reliable bank or trust 
company will offer for sale bonds paying more than 
five or six per cent., and this is considered a legiti- 
mate rate of interest to be paid for the use of money, 
and it is very seldom that the investor loses his money 
when invested in this class of securities; SECOND, 
because the interest rate or money value established 
by most life insurance companies is placed at five per 
cent., this being the rate of interest generally charged 
for money loaned. 

19. Policy to Be Selected By Insured. 

To be able to select the form of policy which will 
best serve his needs, it is only necessary to ascertain 
the fair cost of insurance for his age. If the insured 



14 FALLACIES OF LIFE INSURANCE. 

only needs temporary protection he should select a re- 
newable term policy written to cover the number of 
years this protection is needed. The renewable term 
policy should ALWAYS be selected when a term pol- 
icy is desired for the reason that should the insured's 
health be impaired in the meantime this form of policy 
can be renewed or exchanged to any other form de- 
sired, without medical re-examination, by paying the 
premium rates charged on the new policy for his at- 
tained age. Should permanent insurance be desired 
the whole life continuous premium policy should be 
selected as this affords protection, the only advantage 
to be derived from an insurance policy, at the smallest 
cost to the insured. 

20. Best Investment. 

The best ^ investment ' ' to be secured under any 
form of a life insurance policy is afforded where the 
insurance is purchased at the smallest net cost to the 
insured. A full explanation of these principles will 
be found in the chapters where these respective forms 
of policies are explained in detail in the following 
pages. The mortality and net cost tables to be found 
in Articles 328 and 329 will greatly assist the reader 
in determining the cost of his insurance. 



SCIENTIFIC PRINCIPLES. 15 



CHAPTER II 

SCIENTIFIC PRINCIPLES OF LIFE 
INSURANCE 

21. Death Rate. 

While accident or acute disease may carry off any 
person in a moment, in the twinkling of an eye, it is a 
fact, now clearly established, that the death rate in 
a body of persons is subject to a well defined law. The 
rate may vary according to the circumstances of the 
people, according to occupation and according to coun- 
try, but persons living in modern conditions and 
healthy surroundings experience a rate of mortality 
which is marvelously regular from year to year, and 
still more regular when viewed over a lengthened 
period such as a generation. The fluctuation as be- 
tween one year and the year immediately succeeding 
may sometimes be considerable, although even that is 
less than one would expect when consideration is given 
to the variations in temperature and moisture as be- 
tween one year and the next. Sometimes the effect 
of an unusual season is different from what one might 
suppose; it has been shown that a wet season is in 
many instances more healthy than a dry one, the rea- 
son being apparently that the dust particles in the air 
are more dangerous than the moisture. 

22. How Mortality Tables Are Established. 

As a result of careful observations over a period now 
extending to more than 100 years, very accurate knowl- 
edge has been obtained as to the rates of mortality in 
temporate zones. For general purposes the investi- 
gation is made of communities from the vital statis- 



16 FALLACIES OF LIFE INSURANCE. 

tics derived from census returns and the deaths which 
take place between two census dates. Such tables were 
also used for life insurance purposes in the early years 
of the science, but it was soon demonstrated that in- 
sured lives were subject to a different rate of mortality 
from the general population, especially in the first few 
years after their policies were taken. The reason for 
this is simple: Life insurance companies, to protect 
their own interests, will only accept healthy persons 
who can undergo medical examination to their satis- 
faction. At the present time, therefore, statistics de- 
rived from insured lives are used almost exclusively 
by life insurance companies, and the variation from 
the standard mortality table is seldom great after the 
first two or three years have elapsed from the dates 
when the policies are taken. The calculations involv- 
ing mortality statistics can now be accurately made, 
and the principles on which life insurance transactions 
are based are spoken of as Actuarial Science. Mathe- 
matically this term might be defined as the combina- 
tion of monetary indemnity with the doctrine of 
chances. 

23. Premiums Based on Principal Plus Interest Worth. 

As life insurance contracts involve monetary obli- 
gations extending over a period of time, the interest 
on money is a very important factor in dealing with 
Actuarial Science. The premiums, or at least a cer- 
tain portion of the total premiums, have to be accu- 
mulated at interest so as to provide the sum insured at 
the proper time. The interest question, therefore, as 
affecting life insurance, relates not only to the rates 
which may be obtained for high-class investments now, 
but must take into consideration the interest to be 
earned in future; that is, between the time when pol- 
icies are effected and the time when the sums insured 
become payable. This future rate is necessarily of 
the nature of an estimate, and any such estimate 



SCIENTIFIC PRINCIPLES. 17 

must be on a conservative basis, sucli a rate being used 
in the calculations as can surely be earned. 

24. Investment of Life Insurance Funds. 

For the investment of its fund a Life Insurance Com- 
pany can select from a wide range of securities, in- 
cluding Government, State, and Municipal securities, 
mortgage loans, real estate, stocks, bonds, etc. "With 
this variety of choice, the result has been that Insur- 
ance Companies have earned a very satisfactory inter- 
est rate, and despite the recent tendency towards re- 
duction, the average even yet exceeds four per cent. 
A maximum rate for valuation purposes has been pre- 
scribed by the statutes of most of the States. This 
maximum rate is as high as four and one-half per cent, 
in one or two Western States, but in the East it is gen- 
erally three and one-half per cent. A good many com- 
panies, as a further precautionary measure, have 
adopted three per cent, voluntarily in order to avoid 
any possibility of loss in future if the interest on 
money should seriously diminish. 

25. Two Important Factors in Calculating Life Insur- 
ance. 

The calculations required in life insurance, there- 
fore, involve two important factors, (1) compound in- 
terest, and (2) rates or Mortality. The principles of 
compound interest form part of the mathematics now 
always included in a good general education, but as 
some symbols are used in a particular sense in Actu- 
arial Science, it will be well to recapitulate briefly 
some of the general outlines. 

26. Compound Interest. 

AMOUNT. If $100 be invested at five per cent, per 
annum, the lender will at the end of one year possess 
$105, this being his original capital with the addition 
of $5 of interest. If he again invest this larger sum 



18 FALLACIES OF LIFE INSURANCE. 

at the same rate, the interest he would earn in the 
second year would be five per cent, on $105; that is, 
$5.25, so that at the end of the second year he would 
possess $110.25. If this again were invested for a 
third year, the interest would be $5.51 and the total 
sum in hand, or the '^amount" after three years would 
be $115.76; during the fourth year the interest would 
be $5.78 and the '^amount" at the end of the fourth 
year, $121.54, and so forth. 

It is unnecessary to carry the above illustration fur- 
ther. These values, and those in continuation, are 
shown more accurately in Article 326. The above fig- 
ures show the difference between simple and compound 
interest. At simple interest the amount in hand at 
the end of the fourth year would be $120 only, con- 
sisting of the $100 originally lent, and interest for four 
years at $5 each year. The figures show further that 
the difference between the simple and the compound 
interest is an increasing quantity, beginning with 25 
cents at the end of the second year, increasing to 76 
cents in the third year, and to $1.54 in the fourth year. 
If the illustration were carried further, the difference 
between simple and compound interest would be more 
apparent; in the twentieth year, the amount at com- 
pound interest would be $265.33, while at simple in- 
terest it would only be $200. 

The use of simple interest is entirely illogical over 
an extended time if there is any means of enforcing 
payment of the interest when due, because when the 
interest is obtained it can always be re-invested so as 
to earn more interest, and this is particularly the case 
when an Insurance Company or Corporation collects 
large sums of interest which can be re-invested at once 
on favorable terms. 

27. One ($1) Dollar Invested Per Annum in Advance. 

In order to determine the amount to be derived at 
the end of a specific number of years where an equal 
amount is to be invested each year at a given rate of 



SCIENTIFIC PRINCIPLES. 19 

interest for the table giving the amount of one ($1) 
dollar per annum in advance at the rate of interest 
and the number of years specified, see Article 327. 
For example, should fifty ($50) dollars be invested 
yearly at five per cent, for fifteen years, at the end of 
fifteen years the investor would have $1,133. One ($1) 
dollar invested yearly in advance at five per cent, 
would amount to $22.66. Thus $22.66 X$50==$l,133. 



20 FALLACIES OF LIFE INSURANCE. 

CHAPTER III 

GENERAL INFORMATION 

28. The Two Principles of Life Insurance. 

Life insurance is now being v/ritten on two separate 
and distinct fundamental principles or plans, one being 
designated as '' assessment plan'' and the other as 
'4egal reserve plan." Assessment insurance, literally 
speaking, is divided into two classes called fraternal 
or lodge benefits and companies operating on the as- 
sessment plan, but all designated as assessment insur- 
ance. The legal reserve companies are also divided 
into two distinctive classes called ^^participating com- 
panies" and ^^non-participating companies," but all 
designated as legal reserve or old line life insurance. 

29. Assessment or Fraternal Insurance. 

Fraternal insurance is conducted by an association, 
which is organized without capital stock, having a rep- 
resentative form of government carried on for the mu- 
tual benefit or protection of its members and having 
a lodge system. The companies operating on the as- 
sessment basis are organized upon the mutual plan. 
One principal advantage of the fraternal organizations 
over the companies operating on the assessment plan 
and the legal reserve companies, is in the much lower 
ratio of expenses of management, office and agency ex- 
penses, the agency work generally being performed 
without charge. Many of the organizations under this 
class have sick and health benefits in addition to the 
death benefits. The death certificates issued by these 
organizations generally racge from $1,000 to $4,000. 

Owing to the fact that the members or certificate- 
holders do not pay any premium in excess of the actual 



GENERAL INFORMATION. 21 

cost of a death claim to produce cash surrender or loan 
values and '^dividends or investments," it is only nec- 
essary to issue the one form of certificate for the dif- 
ferent ages. It is on account of the extra premiums 
required to purchase the cash value or self -insurance 
fund, ^'dividends" or '^investment" items, which re- 
quires the issuance of so many different forms of pol- 
icies by the legal reserve companies. 

30. Premiums Paid to Fraternal Organizations. 

The rates of assessments charged the members of 
some of the fraternal organizations are only sufficient 
to pay the assumed yearly mortality expense, while 
others charge a small amount in excess of this assumed 
mortality expense to create a surplus fund with which 
to pay any excess mortality expense, as may be expe- 
rienced by the organization, thereby avoiding having 
to make an extra assessment for many years to meet 
the ever increasing mortality expense among its mem- 
bers. 

31. Fraternal Insurance Discredited. 

Owing to the strenuous competition which exists 
between the life insurance companies of all kinds, the 
fraternal or assessment plan of life insurance is gen- 
erally discredited, the public being educated to believe 
that life insurance policies should have cash surrender 
values, also on account of the possible increase of pre- 
mium rates, which are BOUND to occur where the 
certificate-holders stay with the organizations for many 
years or until death. 

The agents of the legal reserve companies, either 
from lack of knowledge of the principles of life insur- 
ance, or from wanton disregard of the truth, are con- 
tinually discouraging the assessment form of insurance. 
Of course they are not wholly to blame for this lack 
of knowledge, because about the only information they 
are able to secure regarding the principles of life in- 



22 FALLACIES OF LIFE INSURANCE. 

surance is that which is furnished them by their supe- 
rior officers, and if the officers of these companies, who 
are in charge of the agency departments are con- 
versant with these principles they are very careful to 
conceal from their agents any information on this 
point. 

A great many more persons would be carrying pro- 
tection for their loved ones dependent upon them in the 
assessment organizations who are financially unable to 
pay the high premiums charged by the legal reserve 
companies if they were not discouraged from doing so 
by the representatives of the legal reserve companies. 

The public is educated to believe that the assessment 
companies are insecure; that the premium rates 
charged will soon become prohibitive; that on the ac- 
count of the assessment policies having no cash sur- 
render values the companies are not organized on a 
sound financial basis ; that they will receive protection 
for a few years and then their organization will fail 
and the protection so much needed will not be afforded 
them; that on account of their policies not having a 
cash surrender value the insured must die to receive 
any benefits under his policy and should he lapse or 
discontinue his policy in after years all of the pre- 
miums paid will be lost to the insured. 

32. More Fraternal Insurance Would Be Carried. 

The assessment plan of life insurance would be a 
great deal more popular if the officers in charge of 
these organizations would explain to the members or 
certificate-holders the fundamental principles involved 
in establishing premium rates for the assessment plan 
of insurance. The fact that this is NOT done is due 
to a lack of knowledge of these principles on the part 
of the officers. The certificate-holders should be made 
to understand that they CANNOT secure something 
for NOTHING; that the benefits to be derived from 
the premium paid on an assessment policy are just as 



GENERAL INFORMATION. 23 

much, in proportion to the money paid, as under a 
legal reserve form of policy. If the insured MUST 
have paid-up or cash surrender values he must pay 
for them. If he is to have ^^ dividends" he must pay 
for them. If he desires to cease paying premiums 
after twenty years he must pay enough money, with 
its interest worth, in excess of the actual cost of the 
death claim during the first twenty years, to pay for 
the years he may live after that time. 

33. Any Benefits to Be Received Under a Life Insur- 
ance Policy. 

Any benefits to be derived under any form of a life 
insurance policy, whether it be issued on the assess- 
ment or the legal reserve plan, MUST be paid for by 
the policy-holder. If the certificate-holder is only re- 
quired to pay premiums to the organization sufficient 
to meet the mortality expense and the expense of man- 
agement yearly, he must not lose sight of the fact that 
he is allowed to keep in his possession the excess 
money, which he would be required to pay to the legal 
reserve company to buy cash surrender values and 
'^dividends," and if he will keep this money, left in 
his possession, together with its interest worth, the re- 
sults in future years will not only be the same, but he 
will not be subjecting the excess money paid to the 
company to loss by death in the meantime. 

34. Illustration. 

The following table should fully illustrate this point. 
The average assessment rate and the average legal 
reserve non-participating rates, three and one-half per 
cent, basis, are used for illustration. 



24 



FALLACIES OF LIFE INSURANCE. 



35. Table A. Assessment vs. Legal Reserve Ordinary- 
Life. 



UJ 



>- 
cc 

< 
z 

o 
cc 
o 

ill 

> 
cc 

CO 

u 
cc 

-J 
< 
a 

LlJ 



CO 

> 



UJ 

CO 
CO 
UJ 
CO 
CO 

< 

< 

u 

-J 

CO 

< 



Actual 

Ins. 

Legal 
Reserve 
Policy 


l:^l-^ O CQ CO 
GO'* ocot^ 
t^l> CD 0»0 


Actual 
Ins. 

Assess- 
ment 
Policy 


$1000 
1000 
1000 
1000 • 
1000 


Loan 

Value 

Legal 

Reserve 

20th Yr. 


CO C50 00 t^ 

T-l lO r-l CO CQ 

CQ CQCOCO '^ 


Legal Res. 

Cost 
20th Yr. 
Including 
Reserve 


$585.72 
685.92 
770.78 
909.11 

1096.11 


Assess- 
ment 
Cost 


i^ lO Ci O i-H 

CO rjH T:t^ lO l> 


Amount 

of 
Savings, 
20th Yr. 

At 5% 


1-H LO ,— 1 CO O 

rH -* 00 00 tH 

OOOOOC01> 

CQ CQt^rHt^ 

CQ CQ C^ CO CO 


Difference 

in 
Premiums 


t^ 00O^l> 
lO »0 OOO GO 

CO cbt^CiO 

T—l 


Legal 
Reserve 
Premium 


l> GO O O t^ 

00 r-l CQ rH lO 

CO Ci CQ CO T-i 
^ ^ CQ CQ CO 


Assess- 
ment 
Premium 


O CQ Tt^l>0 
1— 1 T— 1 i-H 1— 1 CQ 


1 


CQ^CoS^ 



UJ 



^ CO-^CO CQ 
'rt^ C5 C0 1>rH 
lO '^ '^ CO CO 


$1000 
1000 
1000 
1000 
1000 


CO 00COI> 00 
LOO CO CQ 00 
^ iO»0 coco 


$857.23 
942.30 
1045.07 
1174.57 
1341.92 


CO^ O^ t^ 

i>i>oioo6 

lO lO Ci O 1-H 
CO^ ^ iOI> 

m 


CQ coo CQ CQ 

CO T— 1 T-H T— ( CQ 

OO^t^ CQ 
^ lOOLO CO 


O:) CQ O OOLO 

co»oi> COC5 

^' tH lO O ]> 

tH T—l tH rH I-H 


O CQ OCOiO 

CO rH T-H GO CO 

^i> oco 00 

CQ CQ COCOCO 


O CQ -*l> O 

rH tH T— 1 1-H d 

m 


CQ CO CO '^ ^ 



GENERAL INFORMATION. 25 

The actual insurance, which represents the com- 
pany's liability or the amount to be paid by the sur- 
viving policy-holders in a $1,000 assessment policy al- 
ways remains practically $1,000, therefore where the 
actual insurance remains the same year after year the 
cost will gradually increase on account of the steadily 
increase in mortality. See mortality table, Article 
328. The actual insurance contained in a legal reserve 
policy of $1,000 is being reduced each year, beginning 
with the first, by the payment of the premiums in ex- 
cess of the actual cost, to create the reserve fund, the 
reduction in actual insurance being sufficient to offset 
the increase in mortality expense, i. e., the insured 
pays a part of his own death claim. 

The cash surrender or loan value of a legal reserve 
policy represents the accumulation of this excess 
money, so paid from year to year, which is called self- 
insurance fund. By referring to column ''7" in Table 
A, it will be found that the amount of the self -insur- 
ance fund or the amount the company will loan, or 
the cash the company will return for surrender of the 
policy issued at age 25, on the whole life continuous 
premium plan the twentieth year to be $213. The as- 
sessment policy has no loan value, but if the insured 
will keep the difference in premiums or savings each 
year, the amount of these savings, together with their 
interest worth, will almost equal, if not exceed, the 
amount of the loan or cash value of the legal reserve 
policy. See columns ''4" and ''7," Table A. 

The holder of the legal reserve policy will be able 
to secure from the company, as a loan or cash for sur- 
render of the policy, the amount set forth in column 
arj.j j^ Tables A and B. If the holder of the assess- 
ment policy will keep the dift'erence in the premiums 
and their interest worth yearly, he will have about the 
same amount of cash the holder of the legal reserve 
policy could borrow or secure for its surrender and 
should the holder of the legal reserve policy secure a 



26 FALLACIES OF LIFE INSURANCE. 

loan thereon, the amount borrowed would be deducted 
from the face amount of the death claim, in case of 
death, while under the assessment policy the bene- 
ficiary would receive the full $1,000. The insured has 
reduced the actual insurance contained in the legal re- 
serve death claim at the end of the twentieth year to 
$787 by the payment of the excess premium paid to 
create the self -insurance fund. 

The full net premium required by the legal reserve 
companies at any age improved at the rate of interest 
adopted by the company will a little more than equal 
the death claim if the insured lives to his full expect- 
ancy. The expectance " at age 25 is 38 years. The 
difference or saving in the average premiums at age 
25 found in column ^^3,'' Table A, is $6.57. This 
amount yearly improved at five per cent, interest will 
amount to $743.03 in 38 years. Therefore if the in- 
sured has kept this money as it would have been kept 
had he paid it to the insurance company, in order to 
leave an estate equal to a $1,000 death claim he will 
only be required to carry $256.97 of insurance. The 
insured should certainly be willing to pay for any in- 
surance needed in excess of the savings and their in- 
terest worth. As the actual insurance contained in his 
certificate is practically $1,000, a fair and equitable 
premium to be paid for a $1,000 death claim at age 
63 would be about $50. The interest worth of the ac- 
cumulated savings of $743.03 at five per cent, will 
amount to $37.15, which will reduce the premium to 
almost its original amount. Had he taken a legal re- 
serve policy instead of the assessment he would have 
been required to pay for the actual insurance con- 
tained in the policy at age 63. The actual insurance 
contained in a $1,000 death claim issued at age 25 in 
a legal reserve policy at age 63 on the whole life con- 
tinuous premium plan is only $486.31. The actual in- 
surance contained in an assessment policy at age 63, 
issued at the same age 25, is practically $1,000. Should 



GENERAL INFORMATION. 27 

death occur at age 63 the legal reserve company will 
keep the accumulated reserve or self-insurance fund 
of $513.69 (the insured's own cash), and put $486.31 
with it and pay the death claim of $1,000, while under 
the assessment policy the beneficiary would receive the 
death claim of $1,000 and in addition thereto would 
have a CASH estate of $743.03 (savings and their in- 
terest worth), or a total estate of $1,743.03. Had the 
reader purchased the two policies at age 25, which 
would he consider to be the best investment? 

37. Fraternal Organizations Can Be Made Secure. 

If the policy-holders will pay the same amount for 
any benefits to be derived under an assessment policy, 
the same as he would under the legal reserve policy, 
the assessment plan of life insurance would be just as 
secure as the legal reserve plan. Life insurance was 
primarily designed to enable the insured to protect his 
productive worth against loss by death. The average 
man who has attained the age of 25 has an even chance 
to live 38 years or to age 63. The average man gen- 
erally has little productive worth after he has lived 
the full expectation of life, therefore he has no pro- 
ductive worth to insure after that time. 

If the person who protects this productive worth by 
a life insurance policy written upon the assessment 
plan would be willing to surrender this protection 
after he has lived his expectation of life and feel that 
he had value received, and not expect the company to 
return any of the premiums paid any more than he 
would expect the fire insurance company to return a 
part of the premiums paid had he carried a fire insur- 
ance policy for that number of years, and the assess- 
ment company base its rates on the term insurance 
basis written to cover the term of years represented 
by the expectancy of life, which would be practically 
the premium rates they are now charging, the assess- 
ment company would be just as secure as the legal 



28 FALLACIES OF LIFE INSURANCE. 

reserve company. Just as long as the policy-holders 
of the assessment organizations expect to carry a 
$1,000 death claim, issued at any age, for the premium 
rates now being charged until death, just so long will 
their organizations be insecure. 

38. Legal Reserve or Old Line Life Insurance. 

Life insurance companies operating on the legal re- 
serve plan are writing their insurance on a mathemati- 
cal basis, which has proved to be absolutely safe, i. e., 
any policy-holder who pays the premiums calculated 
upon the American Experience Table of Mortality as 
adopted by the legal reserve companies need have no 
fear that the company will have plenty of money with 
which to pay all the liabilities under its policy con- 
tracts. It is on account of this proven stability that 
the life insurance business has grown to wondrous 
proportions in the last few years. 

39. Young Legal Reserve Companies Are Safe. 

There has been a great number of new companies 
organized all over the United States since the begin- 
ning of the twentieth century and the companies or- 
ganized on the legal reserve basis may be considered 
absolutely safe as far as the policy-holders are con- 
cerned. The larger companies, which have a great 
many millions of insurance on their books, are reduc- 
ing their premium rates to such an extent that it is 
very hard for the young company to compete suc- 
cessfully in the great rush for business, yet should 
they keep their office expenses reduced to a minimum, 
at all times, they will eventually become well estab- 
lished. "Where a life insurance company organized on 
the legal reserve plan consolidates with some other 
company, it is very seldom that losses occur to the 
policy-holders. Under the legal reserve deposit law the 
full legal reserve is always maintained, as this require- 
ment is always very closely watched by the insurance 



GENERAL INFORMATION. 29 

department, and a severe penalty is imposed where 
the officers of any company fail to comply with this 
requirement. Should the company be organized on the 
participating basis the policy-holder only loses part or 
all of the ^^ dividends'' upon his policy where the com- 
pany ceases business and consolidates with some other 
company. 

40. New Policy Forms. 

There are a great many policies being devised each 
year by the different life insurance companies. Some 
of these policies are practically the old forms in prin- 
ciple, but sold under some new name. There is abso- 
lutely no advantage to be gained by purchasing these 
new forms of policies. 

41. The Coupon Policy. 

The coupon policy now seems to be ^^all the rage/' 
more especially among the younger companies, and the 
purchaser of life insurance will do well not to purchase 
any forms of the coupon policies. There are so many 
of these new forms of policies offered for sale, that it 
is very hard for the public to secure information which 
will enable the purchaser to select the form of policy 
which will best meet his needs. 

Some of the conditions, priv^ileges and restrictions 
in the several forms of policies now being issued by 
the different companies are so technically worded that 
it is hard even for an expert to properly interpret 
them. The most important privileges, conditions and 
restrictions will be here given and explained (see Chap- 
ter 14), thereby enabling the Insured or the prospect- 
ive purchaser of insurance to thoroughly understand 
the same and to know how to secure a square deal 
under a new policy, or one that has been in force for 
many years. 



30 FALLACIES OF LIFE INSURANCE. 

42. Future Results. 

Some of the illustrations and comparisons used are 
not figured to the cent, but are sufficiently accurate 
to give the policy-holder or the prospective purchaser 
a good understanding of the future results to be ob- 
tained from his life insurance policy. 

43. Few Policy-Holders Know When They Are Secur- 
ing Fair and Equitable Deal. 

Few policy-holders in general in their dealings with 
the life insurance companies know whether they are 
receiving justice at the hands of the company or not, 
and there are a very few who do not at some time or 
another wonder if they are receiving a just and equit- 
able deal and whether their beneficiaries will receive 
justice at the hands of the company. They may be re- 
ceiving justice from the company, but on account of 
their not understanding even the first principles of 
life insurance, or the fact that they are unable to place 
the proper interpretation upon the conditions con- 
tained in the policy, prevents their recognition of a 
fair and equitable deal and by some fancied wrong 
they may heap unjust condemnation upon the hand 
which eventually will render the greatest assistance. 

44. Owing to Strong Competition Many Objectionable 
Policies Are Issued. 

Owing to the strong competition which exists be- 
tween the life insurance companies, the experts man- 
aging the different companies are constantly devising 
new forms of policies to be issued on some plan that 
may appeal to the public. These forms are usually ob- 
jectionable from the insured's standpoint and the in- 
sured purchases the same, where if he understood the 
true conditions contained in the policies he would not 
purchase them. The most effectual way to stop these 
injustices is for the policy-holder or the prospective 
Purchaser to adopt the plan the successful business 



GENERAL INFORMATION. 31 

man uses in conducting his business, namely, to thor- 
oughly know what he is buying before he buys it and 
not depend upon state legislation to protect him. 

45. Opinion of Judge McCormick. 

In order to illustrate the general condition that now 
exists between the insurance company and its policy- 
holders and to firmly impress upon the policy-holder's 
mind, the necessity ,of a thorough understanding of the 
policy to be purchased, the author will quote an ex- 
tract from the opinion of Judge McCormick in the case 
of Merchants' Life Association vs. Yoakum, 98 Fed. 
Kep., pages 269-270 (see Article 320), which was an 
action on a life insurance policy, and will illustrate 
this noted jurist's opinion regarding this condition. 

46. Do Companies Take Advantage of the Beneficiary? 

' The life insurance companies lay great stress on the 
claim, and have for many years, that they do not take 
advantage of their policy-holders in any way. It 
would seem that Judge McCormick 's opinion does not 
verify this statement. Unless the policy-holder is in a 
position to protect himself against these abuses, how 
can he expect anyone else to do it for him? 

47. The Stronger vs. the Weaker. 

The first party — the company — the originator of the 
too often complicated contract and thoroughly under- 
standing all of the terms contained therein (and every 
word in the policy has a bearing on the contract), the 
second party — the insured — who does not understand 
the first principles of life insurance contained in the 
contract, is it possible to calculate the outcome of such 
a condition? 

48. Why Should the Insured Not Understand His 
Policy? 

Is it possible for the insured to believe that he is 
getting a fair and equitable deal under a contract 



32 FALLACIES OF LIFE INSURANCE. 

which through the neglect on his part has failed to 
acquaint himself with any of the conditions contained 
in such an agreement? What excuse has the insured 
to offer for not understanding his life insurance pol- 
icy as thoroughly as the company, and if he does not 
understand it why does he purchase it? 

49. Misleading Impressions. 

The insured is too often led to believe by the insur- 
ance companies and their agents, that his policy writ- 
ten to cover a certain number of years, is a contract 
entered into under the terms of which he must con- 
tinue at least until the termination of the premium 
paying period to receive the full benefits thereunder. 
This is only true where a policy is issued on the de- 
ferred dividend plan, the issuance of which is now 
prohibited by the laws of some states, on account of 
the heavy losses sustained by policy-holders. The in- 
sured is also led to believe that he has a moral obliga- 
tion to fulfill and that should he terminate his policy 
he would not be keeping his word with the company: 
he is also led to belie /e that the longer he carries his 
policy the greater will be his loss upon its surrender. 
These points will be fully explained in the following 
chapters, the insured may then decide for himself 
whether they are true or not. 

50. Where Losses to Policy-Holders Occur. 

The losses made by policy-holders on their life insur- 
ance policies are largely due to their not knowing how 
to stop such losses, even when possible, according to 
the conditions contained in the policies. By carefully 
following the instructions and information given 
herein, regarding the different forms of adverse pol- 
icies which have been issued heretofore, the insured 
may protect himself against such losses regardless of 
the present age of the insured or the number of years 



GENERAL INFORMATION. 33 

the policy has been in force, as well as to explain the 
proper policies to be purchased. 

51. Lapsed Premiums Are Losses to the Policy -Hold- 
ers and Profits to the Insurance Companies. 

Oiie of the great losses to policy-holders is caused 
by the lapsing of policies. This is also a source of 
great profit to the life insurance companies. If the 
insurance was purchased on the lower priced forms of 
policies vast sums of money would be saved to the 
policy-holders yearly and the loss from this item would 
be reduced to a minimum. 

52. Illustration. 

For example, let us take a $1,000 death claim at 
age 35 issued on the whole life twenty payment plan 
at the average participating rate of $37.02 on the three 
per cent, basis, and a $1,000 death claim which can 
be purchased by the insured at age 35 on the whole 
life continuous premium plan at the average non-par- 
ticipating rate of $22.20, supposing that the policies 
were surrendered for cash the fifth year; $37.02 yearly 
in advance improved at five per cent, interest equals 
$214.71. Subtracting from this amount three ^^divi- 
dends" of possibly $3.50 each, amounting to $10.50, 
together with the cash surrender value of $107 (after 
deducting the fee charged for surrender of $10.52), 
leaving a balance of $97.21 which represents the net 
cost to the insured of a $1,000 death claim for five 
years under this plan; $22.20 yearly in advance im- 
proved at five per cent, equals $128.76, less cash sur- 
render value of $56 (after deducting the surrender 
fee of $6.73), leaving a balance of only $72.76, which 
is the net cost of a $1,000 death claim under this plan. 
The fee charged for surrendering the higher priced 
participating policy is $10.52, the fee charged for sur- 
rendering the lower priced non-participating policy is 
only $6.73. The difference in the net cost of the two 



34 FALLACIES OP LIFE INSURANCE. 

policies of $24.45 represents the unnecessary loss to 
the insured. This point will be more fully illustrated 
under the analysis of these respective policies in the 
following pages. 

"When we take into consideration the fact that a 
large percentage of the insurance is written on the 
whole life limited premium plan and that the average 
length of time the insurance remains on the books of 
the company is less than twelve years, some companies 
as low as eight, and that over sixty per cent, of the 
lapses occur in the first five years, a faint idea may be 
had of the vast amount of money lost by policy-holders 
yearly, and also the large sums of money the insurance 
companies derive from this item with which to pay 
managing expenses. 

53. Insured Should Know Beneficiary Will Be Pro- 
tected. 

If the insured thinks enough of the beneficiary to 
furnish the much needed protection afforded by life 
insurance, he should thoroughlj^ understand the policy 
to know that the beneficiary is going to receive this 
protection after his demise. 

54. State Laws Cannot Always Protect the Policy- 
Holder. 

Many policy-holders are liable to depend too largely 
on verbal or written statements made by the agent at 
the time the policy is purchased, or depend upon the 
advice of some other purchaser, whose knowledge of 
the principles of life insurance are as equally deficient. 
The policy-holders in general also depend too largely 
upon state legislation to protect them against any un- 
just treatment at the hands of the company, when in 
fact it would be impossible for the legislators to enact 
laws which would protect the policy-holder in all cases, 
even if the legislators were thoroughly conversant with 
the principles of life insurance or with the injustices 



GENERAL INFORMATION. 35 

practiced by the different companies. Let us take for 
example the ''predated policies'' that were issued by 
the legal reserve companies for many years, the issu- 
ance of which is now prohibited by law, but not until 
many thousands of policies had been sold to the unsus- 
pecting public, causing not only the loss of hundreds 
of thousands of dollars to the policy-holders, but cre- 
ating a distrust in the minds of the policy-holders in 
general, and the fact that these laws are not retroact- 
ive, the losses sustained under this form will continue 
as long as they are kept in force by the policy-holders. 

55. Policy-Holders Must Protect Themselves. 

Generally a business man will not enter into a deal 
which requires the expenditure of even a SMALL 
amount of money without a thorough investigation of 
the same, and yet he will purchase a life insurance 
policy, which requires the payment of a LARGE yearly 
premium extending over a large number of years upon 
the representation of the agent, whose only interest in 
many cases is the commission he receives for selling 
the same, and this will be done without a comprehen- 
sive knowledge of the most vital conditions contained 
in the policy, or without any investigation whatever. 

If some policy-holders will apply the same tactics in 
conducting their business that they do in the purchase 
of their life insurance, the sheriff or his deputies will 
be required to take charge of their business in a very 
short time. If the policy-holders will persistently con- 
tinue to pay excessive premiums on their life insurance 
policies w^ithout understanding their conditions or fu- 
ture results, after having had an opportunity of secur- 
ing knowledge which would enable them to protect 
their interests, they should not condemn the company. 

56. Company Not Always to Blame. 

As different conditions exist among policy-holders it 
is necessary for the companies to write several dif- 
ferent forms of policies to meet the demands of the 



36 FALLACIES OP LIFE INSURANCE. 

public. Where the policy-holder, through lack of 
knowledge, is unable to select the form of policy which 
will best serve his present or future needs, he may be 
receiving injustice at the hands of the company, with- 
out any wilful intent on the part of the company. 

57. Unforeseen Contingencies May Arise. 

The life insurance policy should be so written that 
it will meet the present needs of the insured and per- 
mit of any modification or changes in the future, with- 
out loss to the insured, as will be necessary to comply 
with future contingencies that may arise, which can- 
not be foreseen at the time the policy is purchased. 
"When in after years some adverse condition in the 
policy develops, the company receives all the censure, 
for which the policy-holder in most cases is to bla.me, 
through the lack of a proper understanding of the pol- 
icy conditions at the time it was purchased. 

58. Legal Reserve Protected by Law. 

We now have laws in all states that protects the 
money held in trust by the companies to meet the fu- 
ture obligations contained in the policy and many 
states have laws that protect the policy-holder against 
some abuses practiced by life insurance companies, but 
it will be practically impossible to pass laws which 
will, at all times and in all ways, protect the policy- 
holders against the injustices practiced by life insur- 
ance companies. 

59. Anti-Discrimination Laws Do Not Protect Insured. 

There are now anti-discrimination laws, i. e., laws 
that are intended to prevent the companies from prac- 
ticing discrimination against the policy-holders (see 
Article 324, Section 1), yet there are greater discrim- 
inations existing under the present laws than those 
which are legislated against, and it will be many years. 



GENERAL INFORMATION. 



37 



if ever, before we will have laws which will prevent 
discrimination in all cases. 

60. Illustration. 

For illustration, let us suppose that A, B, C and D 
are each aged 35. They each purchase a $1,000 death 
claim in the same company. In order to simplify this, 
illustration the non-participating rate is used to avoid 
having to explain the ''dividend" element of the pre- 
mium. 

''A" pays $44.50 on the temporary twenty year en- 
dowment plan; ''B" pays $30.10 on the permanent 
whole life twenty payment plan; ''C" pays $22.20 on 
the whole life continuous premium plan ; and ''D'' pays 
$14.25 on the temporary twenty year term plan. The 
policies each provide for the payment of $1,000 should 
the death of the insured occur within twenty years 
from the issue date. They all die the fifteenth year of 
the policies. 

Table showing results where the policies become a 
claim by death the fifteenth year: 





Premium 


Cash 
Value 


Actual 
Insurance 


Total 
Cost 


A 


$44.50 
30.10 
22.20 
14.25 


$674.00 

418.33 

233.28 

18.59 


$326.00 
581.67 
766.72 
981.41 


$1008 37 


B 


682 06 


C 


503 05 


D , 


322.90 







''A'' and ''D's" policies would both terminate the 
twentieth year, having been written on the temporary 
plan. 

The average necessary rate at a fixed yearly pre- 
mium at age 35 for $1,000 Temporary Standard Death 
Claim is $14.25, therefore $30.25 of ''A's'' premium 
was an overcharge made to create the endowment 
fund, and all the payments made to date of demise were 



88 FALLACIES OF I.IKIO INSUllANCB. 

lost 1,() liis t'sliilc. Had 'VA'' |)iircliiis('(l ilu^ saint; kind 
of policy us (lid "D" and iiivcstcul tlie $:U).2r> yearly 
ut live per eejit., lie would have lei't an iiisuraiiee estate 
of $1,000 plus the savings and their interest worth of 
$()8r).4(;, or a total of $1,G8r).4(i instead of $1,000 nnder 
the eiuh)Winent policy. "A's" $1,000 death (daim had 
eost him in the lirt(UMi years $l,00S.:i7 by thi; paynieut 
of his excessive^ |>i*einiuni plus its iutcM-est worth (see 
Arliclr !)S), thei-eTore his l)eneliciary received $8.:^ 
less than it had cost liiin, wh'de ''l)\s'^ $1,000 
death idaim had oidy cost liim $:>1^'J.!)0, therefore his 
benelieiary received $()77.1() luoi-i; tlian it had cost 
him. liy th(^ paymeid. of th(; ovtu-charge contained in 
the premium, "A" had rediu'ed the actual insurance 
coidaintui in the policy to $*^2() the (irteiMith year, while 
''\)'' had practically a $1,000 death claim. 

*'ir' ami ^^(Vs'' policit\s were both written on the 
peiniaiUMd. iusuraru*e plan. The average nectvssary 
rait; at a. lixed yearly premium at age II'') for $1,000 
rernuiuent Stantlartl Death Claim is $22.20, therefore 
$7.1)0 t>f '^IVs^' yt'Hrly premium was an overcharge, 
and all paynu>nts nuide to date of demise were lost to 
his testate. ^Phis ovt^rtdiarge in |)remium was matle to 
create the exct^ss rt^serve retpTu'etl t)u a whole life 
twenty payment poliey over that required for the 
whole life continutMis premium ptdiey to enable **B*' 
to (^ease paying prtMuiums after the twentieth year, 
for which 'MT' would receive abst^lutely lu) benefit 
until he had lived twenty years. ^MVs'^ $1,000 death 
claim ct>st him in the fifteen years $682. 0(> and ''C*s'' 
$1,000 death claim only cost him $50:^05, therefore 
'']V' i>aid $17i).01 more 'than ''C/' 

If the reader was in ^'A'* or ^'IVs*' position w^ould 
you feel that ytm were being discriminated against? 
A full explanation of the rt^sults as sht)wn above will 
be given in the following pages under the different 
ft)rms t>r ptdicies when they are taken up in detail. 



GENERAL INFORMATION. 39 

61. Adverse Laws Are Detrimental to the Company. 

It is all right to enact laws governing the invest- 
ment of the funds held in trust by the life insurance 
companies for their policy-holders to protect the same, 
but laws enacted to regulate other conditions must be 
in harmony with the natural laws that regulate the 
business of life insurance. No company can exist un- 
der laws enacted which are adverse to the natural 
laws or methods peculiar to the business. On account 
of the general lack of knowledge required for the 
successful management of life insurance companies on 
the part of most legislators, it is very easy to enact 
laws detrimental to the success of the companies in 
their mad desire to eliminate the evils practiced by 
the companies for many years — and these are largely 
due to the lack of knowledge on the part of the policy- 
holders. 

62. It Will Be Possible to Eliminate Evils. 

It is possible to eliminate these evils a great deal 
sooner and more effectual by gaining a thorough 
knowledge of the principles of life insurance from the 
buying end of the deal, which will enable the pros- 
pective purchaser of life insurance to purchase his 
insurance right, than to try to eradicate them by leg- 
islation. If the policy-holders would not purchase 
these objectionable forms of policies, the companies 
Vv^ould not offer them for sale. The officers of the 
companies sell them because the public wants them. 
Adverse legislation has occurred and will continue to 
occur as long as unscrupulous politicians, who haven't 
the slightest conception of the fundamental principles 
of life insurance, take advantage of aggravated condi- 
tions to further their political interests. 

63. Life Insurance Very Little Understood. 

There is no business in the world with equal magni- 
tude of the life insurance business where the people 



40 FALLACIES OF LIFE INSURANCE. 

who buy it understand as little about what they are 
buying. This is not unusual when we taken into con- 
sideration the fact that about the only information the 
insured is able to secure regarding his life insurance 
policies is that which is furnished by the company 
a^d the agent who sells it, and as their interests are 
identical and based on the selling end of the deal, it 
is only fair to presume that they will not give out any 
information detrimental to their financial interests. 

The policy-holder should understand life insurance 
from the buying end of the deal, not only to enable 
him to purchase the form of policy which will best 
meet his needs, but to give him the satisfaction of 
knowing that he has the best he can get for his money, 
providing he has not made a mistake in the purchase 
of his life insurance policy. 

64. Company Will Generally Issue Policy as Applied 
For. 

The companies will generally issue the policies upon 
the plan selected by the purchaser as set forth in the 
application. The supposition on the part of the com- 
pany at the time the application is received is, that the 
applicant has selected the form of policy which will 
best meet his needs, and the applicant should not have 
to depend upon the advice of the company's agent in 
the selection of his form of policy, as the agent's in- 
terests usually cease after the first premium is paid, 
except as the general results may affect the future 
business. 

Under the present commercial and financial condi- 
tions now existing there is nothing to take the place of 
life insurance for those who are otherwise unable to 
protect those dependent upon them against future 
want. Owing to the great demand for life insurance 
protection and the unlimited benefits which are pos- 
sible to be derived from the same make it all the more 
imperative that the insured should ABSOLUTELY 
KNOW that the policy will provide the desired results. 



GENERAL INFORMATION. 41 

65. Insured Not Always Protected by Reserve De- 
posit Law. 

It is very seldom that a legal reserve life insurance 
company does not fully preserve the money held in 
trust. for the protection of its policies in the future, 
as they invariably comply with the state laws govern- 
ing the same. The rigid laws of the states protect the 
legal reserve companies against insolvency, but to 
protect the companies against insolvency, does not 
guarantee the policy-holder against loss in all cases. 
The insured is too often led to believe by the com- 
panies that the legal reserve deposit laws of the sev- 
eral states affords absolute protection against loss to 
the policy-holder and is very often used as a blind 
to cover up adverse conditions contained in certain 
forms of policies. 

66. Where Greatest Losses Occur to the Insured. 

A very small per cent, of the losses sustained by 
policy-holders is due to the insolvency of legal reserve 
life insurance companies. The greatest losses are sus- 
tained where the policy-holder pays the company more 
money yearly than is necessary for as many years as 
insurance is needed. For illustration, where a policy- 
holder at age 35 purchases a life insurance policy on 
the whole life twenty payment plan, he agrees to pay 
the company in twenty equal annual installments all 
of the money he is required to pay, to cover 61 years 
of insurance, which is the insurance years from ages 
35 to 96. Should the insured die at age 65 he has paid 
for 31 years of insurance (the insurance years from 
ages 65 to 96) that he does not need. Should he die 
at age 80 he has paid for 16 years he does not need, 
etc. 

67. Read Your Policy and See if You Understand It. 

If the reader is carrying a life insurance policy of 
any kind, carefully read the same to see if a clear and 



42 FALLACIES OF LIFE INSURANCE. 

accurate understanding is obtained of all the condi- 
tions, privileges and restrictions contained therein. 
Upon examination if you find that you do not under- 
stand them, how would you be able to determine 
whether or not you were paying more for your insur- 
ance than it is worth to you at the present time, or 
more than it should cost you for any benefits to be 
derived from the same in the future? It very often 
occurs that when a policy-holder understands one or 
two of the conditions in the policy, he thinks he under- 
stands all of them, and where this condition exists 
losses are most likely to occur. Life insurance policies 
are generally so technically written that about all the 
information the novice is able to gain regarding the 
policy is the amount of premium he is required to pay 
each year. It is not uncommon to find policy-holders 
carrying policies, who do not know whether the policy 
is written on the whole life or endowment form or 
whether the premiums are payable for a limited num- 
ber of years or for the whole of life. 

68. Great Proven Worth Should Not Be Used as a 
Cloak. 

Most all of our eminent men prominent as scientists, 
statesmen and in the clergy are ever proclaiming the 
great worth of life insurance, yet this proven worth 
should not be used as a cloak by officials of life insur- 
ance companies to cover unfair dealing or fraudulent 
business methods, which work a hardship upon the 
policy-holders. 

69. Discriminating Policies Should Never Be Pur- 
chased. 

Any form of policy which purports to pay more 
money to one policy-holder than to others of the same 
class should never be purchased. A policy-holder who 
purchases any form of policy purporting to give more 
for the premiums paid than others in the same class 



GENERAL INFORMATION. 43 

are to receive, on account of their prior death or finan- 
cial inability to maintain the policy, should never com- 
plain if the future results fail to equal those promised. 

70. A Life-Time Study Not Necessary. 

It. is not necessary for a person to make a life-time 
study of the life insurance business in order to be able 
to select a form of policy that will give him a fair and 
equitable deal with the company. It is only neces- 
sary for the person to know the fair and equitable 
cost of life insurance for his age. 

71. No Investment in Life Insurance for the Insured. 

The element of investment and savings should be 
eliminated from every form of policy. There is abso- 
lutely no investment benefit to be derived from any 
form of life insurance policy by the insured if he lives. 

72. Life Insurance Company Not a Savings Bank. 

The life insurance company affords a very poor sys- 
tem for the care or protection of the policy-holder's 
savings. Would the reader consider it a prudent trans- 
action to deposit with a savings bank a certain sum 
of money yearly, for a specified number of years, with 
the understanding that should he died before the ter- 
mination of the time specified, the bank would keep 
the savings and their interest worth, but if he should 
live to the end of the period he would then be able 
to secure the savings? I dare say you would not, yet 
this is exactly what you are doing with the life insur- 
ance company when you purchase an investment or 
savings policy. 

73. Proper Education Will Prevent Evils. 

It may never be possible to eliminate the several 
evils now practiced by life insurance companies, but 
educate the public to know how to select the proper 
form of policy, and these evils will be reduced to the 
minimum. When the public knows that they can get 



44 FALLACIES OF LIFE INSURANCE. 

an equitable deal with the life insurance companies, 
there will be a great deal more insurance carried. This 
is only reasonable to suppose when we take into con- 
sideration the fact that the great amount of life in- 
surance is now carried while so much agitation and 
distrust is existing in the minds of the public. 

74. Officers and Agents Are to Blame. 

A great majority of the officers of the life insurance' 
companies, who compile the advertising literature, and 
their agents, are wholly to blame for the distrust now 
existing among the policy-holders and the insuring 
public in general. After having read the literature put 
out by the different companies, is it any wonder that 
the prospective purchaser should be skeptical? 

It is not uncommon to find printed lists containing 
the names of from ten to fifty life insurance companies 
arranged in the order best calculated to display the 
superiority of the company issuing such statement and 
wdth the name of the company displayed in large bold- 
face type leading the list, and with these documents 
the agent at once attempts to convince the purchaser 
that his company is greatly superior to all other life 
insurance companies. The competing agent at once 
produces his literature with the name of his company 
at the head of the list to prove its superiority over 
all others, and should the prospective purchaser be un- 
fortunate enough to be solicited by several competing 
agents, the arguments put forth by these agents would 
thoroughly convince him that NONE of the companies 
were reliable. 

If the agents representing the life insurance com- 
panies would adopt the motto, *'A11 life insurance com- 
panies are good and now is the time to purchase the 
much needed protection," and eliminate the damaging 
arguments regarding their competitors, there would be 
a great deal more life insurance sold. 



GENERAL INFORMATION. 45 

CONCISE INFORMATION. 

75. Life Insurance. 

Life insurance is a certain sum of money to be paid 
to the insured's beneficiary or estate upon the death 
of the insured, thereby enabling the insured to pro- 
tect his productive worth against loss by death to any- 
one dependent upon him or to his estate. 

76. Policy a Contract. 

The contract that exists in evidence of the agree- 
ments between the company and the insured is called 
a life insurance policy, under the terms of which the 
company agrees to perform certain acts provided the 
insured performs certain other acts. 

77. Death Claim. 

The amount stipulated in the policy which the com- 
pany agrees to pay upon the death of the insured is 
called the death claim, and is made up of two ele- 
ments, namely, the actual insurance or that part of 
the death claim to be made up or paid by the com- 
pany (which is the other policy-holders), and the 
amount of the accumulated reserve or self-insurance 
fund, which is paid by the insured to help the com- 
pany pay the death claim, and the part assumed by the 
insured is an increasing amount in practically all 
forms of policies, and the part assumed by the com- 
pany correspondingly decreases the amount of the re- 
serve or self-insurance fund, eventually equaling the 
amount of the death claim. 

78. The Insured's Own Cash Is Not Insurance. 

The insured's own cash is not insurance. The fol- 
lowing illustration should clearly show this point: 
Should the insured deposit $1,000 in any bank to be 
paid to his beneficiary or estate upon his death, it 
could not be called insurance, it is simply a death 
claim; and if the bank was paying three per cent, on 
its deposits and if the insured would withdraw the 



46 FALLACIES OP LIFE INSURANCE. 

$30 interest each year to date of demise, the death 
claim would remain the same. Should the insured de- 
posit $1,000 with an insurance company in one pay- 
ment, said $1,000 to be paid to the insured's bene- 
ficiary or estate upon his death, this $1,000 would not 
be insurance, it is simply a death claim; and if the 
company was aperating on a three per cent, basis and 
the insured would withdraw the $30 interest or so- 
called '^dividends" each year to date of demise, the 
death claim would remain the same. If the insured 
would pay $500 to a life insurance company in one 
payment, under a contract whereby the company 
agrees to pay $1,000 to the insured's beneficiary or 
estate upon his death, the insured would then have 
$500 of insurance, but the insured would be required 
under the contract to leave the $15 interest due 
thereon with the company, and the interest thereon 
compounding annually would eventually equal or wipe 
away the $500 the company (or the other policy-hold- 
ers) would be required to pay under the contract. The 
cost to the insured for the $500 insurance for the first 
year would be $500. The cost to him thereafter would 
be the interest worth of the $500 paid by the insured 
and held by the company, which would amount to $25 
per year to date of demise, as the insured would be 
able to receive at least five per cent, had he invested 
the $500 in first class securities. 

79. Life Insurance Never Paid to the Insured. 

Life insurance is never paid to the insured, it is 
paid only after the death of the insured, therefore it is 
impossible for the insured to ever receive any of the 
actual insurance proceeds of his own life insurance 
policies. 

80. Any Cash Value Insured's Own Money. 

Any sum of money to be paid to the insured under 
certain provisions contained in a life insurance policy 
is only money paid to the com.pany by the insured in 



GENERAL INFORMATION. 47 

excess of the cost or worth of the actual insurance con- 
tained in the policy, to provide for future contingencies 
as follows: FIRST, where a level stipulated premium 
is charged for a specified number of years or for the 
whole of life for permanent insurance, in order to off- 
set the steadily increasing cost of a certain death claim 
as the insured grows older, he must pay to the com- 
pany during the first years of the policy money in ex- 
cess of the present cost or worth and his share of man- 
aging expenses. This money is held by the company 
to accumulate the legal reserve or self-insurance fund 
as prescribed by the law governing legal reserve com- 
panies ; SECOND, where a certain amount of money is 
to be paid the insured under any form of an endow- 
ment policy, after a specified number of years, the in- 
sured must pay enough money in excess of the cost or 
worth of the actual insurance contained in the policy, 
together with its interest worth, to equal the amount 
of the endowment fund, in addition to the amount he 
is required to contribute to pay his share of managing 
expenses. The reserve (self-insurance fund) or the 
endowment fund is not insurance. This money can be 
withdrawn on any anniversary of the policy, generally 
after the third. 

81. Insured May Lose Own Cash By Death. 

insured should never pay money to any insurance 
company to be returned or paid to him at some future 
time contingent upon his living ; he may die and lose it. 

82. Insurance Company Not a Producing Organization 
or a Bank. 

A life insurance company is a distributing and not 
a producing organization. A life insurance company 
is NOT a savings bank. 



48 FALLACIES OF LIFE INSURANCE. 



CHAPTER IV 

BASIS FOR DETERMINING PREMIUM 

RATES FOR THE COMPANY AND 

NET COST TO THE INSURED 

83. Contract. 

Bach life insurance policy is the complete contract 
existing between the company and the insured, there- 
fore it must contain the elemxcnts of date, considera- 
tion and time, the DATE being the time the policy 
goes into effect. The CONSIDERATION is the acts 
to be performed by the company and the insured. 
TIME is the number of years the policy is written to 
cover, which may be any number of years from one 
to eighty-five. 

84. Time Important to Company and Insured. 

Time is one of the most important factors to be 
taken into consideration in establishing premium rates 
for the company, and also important to the insured. 
The company must know the number of years within 
which it will be required to pay the death claim should 
the death of the insured occur; and the insured must 
pay to the company his share of the death claims that 
will have to be paid within the number of years the 
policy is written to cover, and also pay his proportion 
of the managing expenses. If the policy was only 
written to cover one year, the amount the insured 
would have to pay to cover current mortality and man- 
aging expenses would be very small. The greater 
number of years the policy is written to cover, thereby 
extending the company's liability, the greater will 



NET COST. 49 

have to be the amount contributed by the policy- 
holders. 

85. Calculation of Premiums. 

In order that the company may collect a propor- 
tionate amount from each policy-holder carrying an 
equal death claim, it is necessary to adopt some uni- 
form basis or table of averages from which to calcu- 
late the amount to be collected, and as all policy-hold- 
ers do not purchase their insurance at the same age, 
it becomes necessary for the company to calculate the 
average relative cost of the $1,000 worth of death 
claim liability in a manner to correspond with the age 
of the insured, knowing that the older the policy- 
holder or purchaser the greater will be the liability 
on the part of the company to pay out the $1,000 as a 
death claim. On account of the premiums being ex- 
tended over a greater number of years, it requires the 
payment of a smaller premium for the younger ages 
and a large premium as the insured grows older, the 
risk or possibility of the death claim becoming greater 
with each year's increase in age after the age of ten. 

86. Insured Must Pay the Increasing Cost. 

"Where a policy is purchased at a certain age the in- 
sured is required to pay the increasing cost for the 
actual insurance contained in the policy as he grows 
older. "While the premium paid remains the same, the 
actual insurance contained in the policy is reduced 
each year sufficiently by the payment of the over- 
charge in each premium of the cost of the actual in- 
surance in the earlier years of the policy to offset the 
yearly increase in cost as the insured grows older. 
When a policy is issued at any age on a level pre- 
mium, the premiums paid provide for the natural in- 
crease in cost for each succeeding year's increase in 
age of the insured. A further explanation of this im- 



50 FALLACIES OP LIFE INSURANCE. 

portant point will be found in the explanation of the 
'^One Year Term or Step-Rate Policy/' Chapter V. 

Unless all life insurance policies written to cover a 
number of years provide for the payment of the nat- 
ural increasing cost as the insured grows older, the 
company is bound to fail sooner or later, and the sta- 
bility of the company is one of the most important 
points to be taken into consideration at the time the 
policy is purchased. 

87. Insured Is Generally Misinformed. 

Policy-holders are too often led to believe that in- 
as-much as they purchase their life insurance at a 
younger age they are getting their insurance at a 
lower cost than if they were to purchase it at their 
advanced age. This is NOT true where policies are 
continued in force until death. Each policy-holder 
purchasing a $1,000 death claim is required to pay to 
the company a sum of money which, improved at the 
rate of interest adopted by the company, is sufficient 
to pay all the current expenses of the company, and 
in addition thereto create a reserve fund equal to the 
death claim at age 96, regardless of the age of the 
insured at the time the policy was purchased. If the 
policy is purchased at age 21 on the whole life con- 
tinuous premium plan, while the premiums required 
will be smaller, yet he will be required to make twenty 
more premium payments than were he to purchase the 
policy at age 41. They are also led to believe that the 
death claim is all actual insurance, which is not true. 
The death claim contains the insurance. 

88. American Table of Mortality Used. 

The American Experience Table of Mortality (see 
article 328) is the table used by practically all the 
life insurance companies to calculate the cost of the 
insurance for each policy-holder and for different ages 
on any policy, for the number of years the policy is 



NET COST. 51 

written to cover relative to the age of the insured at 
the date of issue of the policy and subsequent years. 

This table, compiled from observation and experi- 
ence, assumes that, starting with a large number of 
individuals at any given age, a certain per cent on the 
average, will die during the first year and a greater 
per cent of the living, the next year, and so on year 
after year until all are supposed to be dead by age 96. 

There is no actual insurance remaining in any form 
of policy after age 96 because the premiums paid and 
their interest worth are sufficient to pay all of the 
expenses of the company and in addition thereto an 
amount equal to the face of the policy or the death 
claim at that time. All whole life policies mature as 
an endowment at age 96. 

The calculations made from this table of mortality 
are presumed to be absolutely safe. Experience has 
proved that the rates established by this table are a 
little in excess of the actual amount required, there- 
fore this basis has proved to be a safe one for the 
company and to furnish permanent and absolute pro- 
tection for the policy-holder. 

89. It is Not Plain How Losses Occur. 

This being a well established fact it may not be 
plain to policy-holders how it is possible to have losses 
occur when the rates charged are based on this table. 
It is very seldom that any loss occurs to the insured 
when his life insurance policy is written to contain 
only the fundamental principle of life insurance, 
namely, protection. Losses only occur to the insured 
or his estate when the policies are written to con- 
tain the elements of 'investment" or '' paid-up values" 
or any other items that are not insurance and are 
detrimental to the principles of insurance. 

90. Cost Easily Calculated by Company. 

By referring to the table of mortality, which is 
based on past experience, it is very easy for the com- 



52 FALLACIES OP LIFE INSURANCE. 

party to calculate the cost to be paid by the policy- 
holder for any age, and any number of years the pol- 
icy is written to cover, and with any other conditions 
the policy may contain in addition to that of the death 
claim. It is the charges made against the policy- 
holder for these additional items that requires the 
issuance of so many different forms of policies and 
also makes such a variation in the yearly cost to the 
policy-holder for each $1,000 of death claim or mul- 
tiple thereof. 

The reader should ever bear in mind that when he 
purchases a life insurance policy, which promises to 
furnish any benefits other than true insurance, he must 
pay the company the full worth of such benefits and 
when he is to receive such benefits at some future 
time, he is jeopardizing to loss by death in the mean- 
time all money paid for the same. 

91. Interest Used in Calculating Premiums. 

The company always takes into consideration the, 
interest to be earned when it calculates the money to 
be paid by the insured for the benefits provided for 
by the terms of the policy, thus making the amount 
of money the insured is required to pay less than if 
the interest rate was not considered. The rate of in- 
terest adopted by the different companies is 3, 3| and 
4 per cent. Most all companies have adopted the three 
per cent basis. The state laws provide that a minimum 
rate of interest must be earned on all excess money 
paid to the companies by the policy-holders to create 
the reserve. 

Owing to the fact that all companies do not adopt 
the same interest basis there is a slight difference in 
the net rates required for the different forms of poli- 
cies issued. Where a company has adopted the three 
per cent basis it must earn a minimum of three per 
cent interest on all money held to create the reserve 
values. Where a company has adopted the three and 



NET COST. 53 

one-half or four per cent basis it must earn a mini- 
mum of three and one-half or four per cent interest 
on such reserve value. It will require more money to 
produce a stated amount of money at the end of a 
specified number of years where the three per cent 
basis is adopted than is required under the three and 
one-half or four per cent basis. 

At age 35 the net rate on a whole life continuous 
premium policy on the three per cent basis is $21.08, on 
the three and one-half per cent basis it is $19.91 and 
on the four per cent basis it is $18.84, and the cash 
value or self-insurance funds will vary in proportion. 
The four per cent being a little less than the three 
and one-half per cent and the three and one-half per 
cent being a little less than the three per cent at the 
end of an equal number of years the policy has been in 
force until age 96 is attained on permanent insurance 
and to the end of the endowment period on the endow- 
ment policy, at which time all reserve values are equal. 

The cash value or self -insurance fund accumulated 
on a whole life continuous premium policy on the 
three per cent basis the tenth year issued at age 35 
is $146.01, on the three and one-half per cent basis 
$135.76 and on the four per cent basis it is $126.26. 

"Where the policies are issued on the three and one- 
half per cent basis the net premiums and cash value 
or self-insurance funds vary proportionately at the dif- 
ferent ages and years specified on all forms of single 
premium life, whole life and limited payment life poli- 
cies, but regardless of the rate of interest adopted the 
cash value or self-insurance fund always equals the 
amount of the death claim at age 96 of the insured 
on the above forms of policies, if the policies are all 
based on the American Table of Mortality, 

The net premiums and the cash value or self-insur- 
ance funds vary approximately the same, for the same 
age, and same number of years specified on the dif- 
ferent forms of endowment policies issued on the three- 



54 FALLACIES OF LIFE INSURANCE. 

three and one-half and four per cent basis, but the 
cash value or self-insurance fund becomes equal to the 
death claim at the end of the endowment period, re- 
gardless of the interest basis adopted. 

The amount of money to be paid yearly for perma- 
nent insurance, as required by the table of mortality, 
exclusive of his own policy, is always in excess of the 
amount required to pay the current expenses of the 
company for that year and the company agrees to earn 
the rate of interest adopted by it on such excess money 
paid to create the reserve. Consequently when a cer- 
tain rate of interest is agreed upon at the time the 
policy is issued, this rate cannot be changed to a 
lower rate without changing the conditions of the 
policy. 

"Whenever reference is made to the basis of a life 
insurance policy we say, 'Hhe policy is based upon the 
American Table of Mortality v/ith 3, 3^ or 4 per cent 
interest," as the case may be. Thus we have a basis 
from which to calculate the cost to the company. 

92. Cost of Insurance to Policy-Holder. 

The cost to the insured for his life insurance will 
now be taken into consideration. The purchaser of 
insurance should select the form of policy desired 
which contains the most favorable conditions adapted 
to his needs, which can be furnished in a well estab- 
lished company at the smallest cost for the same. See 
conditions, privileges and restrictions a policy should 
contain. Chapter XIV. 

93. Interest Worth Should Be Considered by Pur- 

chaser. 

In calculating the cost of a life insurance policy 
the interest worth of the premiums paid should be 
taken into consideration by the purchaser, because the 
rate established by the company is based on this item 
and the fact that this is very important in establish- 



NET COST. 55 

ing the company's rate to be charged the policy-holder 
should be ample proof that this item should be taken 
into consideration when the policy-holder is calculat- 
ing the cost of his life insurance. Insurance should 
always be purchased for protection for those depend- 
ent upon the insured. Any future benefits the insured 
is to receive under a life insurance policy are only 
IMAGINARY, but the premiums and their interest 
worth which are paid for these forms of policies are 
NOT imaginary. 

94. Premiums to Be Paid. 

If the insured could purchase a one thousand dollar 
bank note to be paid to his beneficiary should his death 
occur in the next twelve months, for $15 or $23, why 
should he pay $38 or $50 for the same? If this prin- 
ciple applies to the first year of a policy, why does 
it not apply to the 2nd, 3rd and 4th years, etc.? 

95. Insured Should Take no Chance. 

A life insurance policy is purchased for the pur- 
pose of eliminating the chances of the insured being 
unable to provide in the future, for those dependent 
upon him should his death occur. This being a fact 
why should the policy-holder pay to the company un- 
necessary money and take chances on living to re- 
ceive it, first shifting the element of chance to be 
borne by the company and then accepting a policy 
which shifts a portion of this element back to him? 
By eliminating the chance element on the part of the 
insured from the policy, the cost of the same would be 
greatly reduced. 

96. High Premiums Do Not Reduce Actual Cost to 

Insured. 

The purchaser of insurance is too often led to be- 
lieve that by paying the higher premiums for his in- 
surance the cost to him will be reduced. This is only 



56 FALLACIES OP LIFE INSURANCE. 

a delusion and a snare. The twenty payment whole 
life policy is the most popular form of policy issued 
at this time because the public is educated by the life 
insurance companies to believe, that under this form 
the insurance can be purchased at a less cost than 
under the whole life continuous premium policy, be- 
cause the payment of premiums cease after twenty 
years, yet this is one of the most expensive forms of 
permanent insurance for the insured. 

97. Misleading Illustration Shown by Life Insurance 
Agents. 

It is not uncommon for the agent to illustrate that 
by adopting this form of policy the insured can secure 
his insurance for practically the interest on his money. 
While this is true to a certain extent, yet the insured 
is required to pay such large yearly premiums that 
the excess money and the interest worth of the premi- 
ums paid makes it very expensive insurance and in 
addition thereto, he is subjecting the excess premium 
paid to loss by death in the meantime. 

For example, let us take a twenty-payment whole 
life policy at age 35, three and one-half per cent in- 
terest basis, non-participating plan, average annual 
premium, $30.10. In order that no partiality may be 
shown the average non-participating rate is used in 
this illustration. Some companies quote a lower and 
some a higher rate. The full legal reserve or cash 
surrender values are used for illustration. "Where a 
smaller cash surrender value is given by any company, 
than those quoted herein, the difference between the 
two represents the fee charged by the company for sur- 
render. Some companies do not charge a surrender 
fee. 

Total premiums paid in twenty years, LESS IN- 
TEREST WORTH $602.00. Deducting full reserve or 
cash surrender value at end of twentieth year of 
$566.15, leaves a balance of $35.85. Therefore the in- 



NET COST. 57 

sured has carried a $1,000 death claim for twenty 
years for $35.85 and the INTEREST WORTH OF THE 
PREMIUMS, At a glance this looks most awful rea- 
sonable and the average person, without stopping to 
figure the real cost, is liable to accept the same. 

98. Correct Illustration. 

Let us determine the actual cost by adding the IN- 
TEREST WORTH of the premiums paid. 

The premium of $30.10 paid yearly in advance im- 
proved at five per cent interest in twenty years will 
amount to $1,045.07, deducting the cash surrender 
value of $566.15 will leave a balance of $478.92, which 
represents the actual cost of a $1,000 death claim for 
twenty years. 

99. Investment Element of Premium is Lost Where 

Insured Dies. 

The insured is too often induced to purchase the 
high-priced limited premium policies on account of the 
large amount of cash the insured will be able to re- 
ceive providing he lives. If the insured is going to 
live to the end of the twentieth year in order to be 
able to receive the large cash surrender value which 
is held up to the insured as an inducement to purchase 
the policy, he does not need life insurance. Life in- 
surance is only paid to the beneficiary where the in- 
sured dies. If he is going to die what is the use of 
purchasing the high-priced insurance in order to ac- 
cumulate a large cash value or self-insurance fund 
which will be lost in case of death? The large cash 
value or self-insurance fund does not increase the 
death claim, it only helps the company to pay the death 
claim. If the purchaser is going to live for twenty 
years invest the amount of the premium, $30.10, yearly 
in advance at five per cent and in twenty years the in- 
sured will have $1,045.07 in cash. Certainly the pur- 
chaser does not know that he is going to live twenty 



58 FALLACIES OF LIFE INSURANCE. 

years. Then what? Purchase a $1,000 death claim on 
the whole life continuous premium plan for the aver- 
age non-participating premium of $22.20 for age 35, 
and by so doing the purchaser will secure the great- 
est amount of insurance for the smallest cost, and 
invest the balance of the premium where it will not 
be lost should the insured die. For further illustration 
of this point see article 267. 

100. Limited Premium Policies Are Single Premium 

Insurance. 

Where any form of a limited payment whole life pol- 
icy is purchased the insured is simply purchasing sin- 
gle premium insurance for an older age and single 
premium is the most expensive form of permanent in- 
surance. Where the insured purchases a twenty-pay- 
ment life policy at age 35 on the non-participating 
three and one-h^alf per cent basis, the $30.10 paid to 
the company annually will pay the insured's share of 
mortality and managing expenses for the twenty yea.rs 
and in addition thereto create a reserve or self-insur- 
ance fund equal to the single premium of $566.15 for 
age 55. If the insured purchases a ** paid-up" policy 
at age 55 the cash value or self -insurance fund is sim- 
ply turned over to the company as a single premium. 

Why pay $566.15 for a $1,000 ^'paid-up" death claim 
^?t age 55? That pays for your insurance until you 
are 96 years old and should death occur in the first 
few years this would be a pretty heavy premium to 
pay for a $1,000 death claim. The accumulated re- 
serve or the cash surrender value of any form of a 
limited payment whole life policy at the end of the 
premium paying period issued at any age, equals the 
single premium at the attained age of the insured. 

101. Illustration. 

For example, the accumulated reserve or cash sur- 
render value of a $1,000 death claim on the twenty 



NET COST. 59 

payment whole life plan issued at age 35 on the three 
and one-half per cent basis at the end of the twentieth 
year is $566.15. The net single premium required for 
a $1,000 death claim on the three and one-half per 
cent basis at age 55, the attained age of the insured, is 
$566.15. If the insured purchased a $1,000 death claim, 
on the fifteen payment whole life plan, same basis at 
age 40, the accumulated reserve or the cash surrender 
value at the end of the fifteenth year would be $566.15, 
being the net single premium for age 55, the attained 
age of the insured. If the insured purchased a $1,000 
death claim on the ten payment whole life plan, same 
basis, at age 45, the accumulated reserve or the cash 
surrender value at the end of the tenth year would 
be $566.15, being the net single premium for age 55, 
the attained age of the insured. 

102. Participating vs. Non-Participating. 

As the item of so-called dividends the insured ex- 
pects to receive where the policy is purchased upon 
the participating plan is very important in calculating 
the cost to the insured of his insurance, this point 
will be here explained by giving the reader illustra- 
tions and comparisons whereby a comprehensive un- 
derstanding may be had of the future results that may 
be expected. 

The companies now writing insurance upon the legal 
reserve basis are divided into two distinctive classes 
namely, participating and non-participating. Some 
companies still continue to write their business on the 
participating or dividend paying plan and a great num- 
ber of companies have adopted the non-participating 
plan, and there are a few who write their policies on 
both the participating and non-participating plans. 

103. Participating Insurance. 

The participating companies are those who add a 
large amount called ^^ expense loading'' to the net 



60 FALLACIES OF LIFE INSURANCE. 

premiums to pay the expense of management and also 
to create a surplus fund to meet any excess mortality 
expense should this item exceed the expected mor- 
tality. The company agreeing to return to the pol- 
icy-holder as ^'dividends" all of the excess money col- 
lected, which has not been used for extra mortality 
expense and expense of management. As it is im- 
possible to calculate the exact amount of overcharge 
or the amount to be returned to the policy-holder as 
so-called ^^ dividends" the amount to be so returned 
must be an ^^ estimated" amount and the fact that the 
officers of the participating companies and also their 
agents, are so lavish in their *^ estimates" of the so- 
called ^'dividends" to be paid to the policy-holders 
under these forms of policies that far exceed the 
amounts actually returned, is creating a distrust and 
general dissatisfaction among the policy-holders and 
prospective purchasers of life insurance. 

104. Dividends Overestimated. 

It is not uncommon to find the agents of these com- 
panies submitting 'typewritten" sheets showing the 
future '^ estimated dividends" or results to be obtain- 
ed so greatly exaggerated that the purchaser is led 
to believe that he can carry his insurance for almost 
nothing. Many states have passed laws prohibiting the 
officers or agents of any company from furnishing any 
'^ estimated dividends" to be paid under these forms 
of policies. See Article 323, Section 132, Chapter 5, 
of Indiana laws, and Article 324, Section 206, Chapter 
5, of Illinois laws. 

105. Investigation by Armstrong Committee. 

There has been millions of dollars of unnecessary 
money paid to the participating companies by the pol- 
icy-holders for managing expenses, which resulted in 
gross mismanagement and lavish expenditure of money, 
rightfully belonging to the policy-holders, and it was 



NET COST. 61 

Mr. Lawson's exposure of these methods that caused 
the investigation of the life insurance companies of 
New York by the Armstrong Committee. While this 
investigation has done a great deal to remedy some 
of the evils practiced by life insurance companies, 
yet the committee did not go far enough with the re- 
form. 

106. Investment. 

The officers of the participating companies have 
spent vast sums of money educating the public to 
believe that by purchasing the higher-priced forms of 
policies they were really securing an investment and 
that the refunds in the overcharge made in the premi- 
ums were actual ^^ dividends.'' The only possible in- 
vestment to be received under a life insurance policy 
is the insurance paid to the beneficiary after the death 
of the insured. The greater amount of actual insur- 
ance contained in the death claim, the greater will 
be the investment, and the lower costing policies afford 
the greatest amount of actual insurance of the death 
claim. 

Where the insured at age of 35 pays $38 for a 
$1,000 death claim that can be purchased in just as 
reliable a company with just as favorable policy con- 
ditions for $30, and have $6 or $8 or possibly $9 re- 
turned as a ^'dividend" at some future time, can this 
be considered a ^* dividend?" 

In order to best illustrate the true condition exist- 
ing regarding the dividend element of a life insurance 
policy an opinion of Commissioner of Internal Revenue 
Royal E. Cabell of an act of August 5th, 1909, will 
be given and it will undoubtedly be very interesting 
reading to persons who have purchased the partici- 
pating insurance and paid the high rate of premium 
for the same, believing they really had a good in- 
vestment. See article 319. 

This opinion declares that the so-called ^^ dividends" 



62 FALLACIES OP LIFE INSURANCE. 

of life insurance policies are subject to assessment 
as incomes and requires very little comment as it is 
self explanatory, yet it is well to call special attention 
to a few of the most vital points at issue. 

107. Dividends Are Refund of Overcharge. 

By referring to paragraph three (3) it will be found 
that the officials of the life insurance companies con- 
tend that the dividends paid to the policy-holders are 
not really ^^ dividends/' but simply a return of the 
overcharge made in the premium which is held in trust 
by the company, a part or all, perhaps (most always 
only a part, less the interest worth) to be returned 
to the policy-holder at some future date. 

These same companies for many years have been edu- 
cating their agents to believe that this refund of over- 
charge was really a ^ ^ dividend. ' ' The vast amount of 
literature distributed by these companies and their 
advertisements specifically state to the public that the 
cash the policy-holder receives as a ^^ dividend" is in 
reality a portion of the surplus or earnings of the 
company, and if this is true it IS a dividend and 
Commissioner Cabeirs opinion is to the effect that 
they ARE dividends. Does not this admission on the 
part of the officers of these companies give the public 
a right to at least doubt their integrity and sincerity? 
Is it not fair to presume that if they would misrep- 
resent one thing either to the public or Commissioner 
Cabell, that it might be possible for them to make 
other misrepresentations regarding the policies? 

108. Misrepresentations Are Being Made. 

There is no doubt that misrepresentations have been 
made and there are misrepresentations being made to 
the public every day which are more detrimental to 
the financial interests of the policy-holders on account 
of the larger sums of money being paid to the com- 
pany for alleged 'investment" policies. 



NET COST. 63 

109. Unbusinesslike Methods Adopted. 

By referring to paragraph eight (8) of this opinion 
it will be found that the methods adopted by the 
officers of these companies, to induce piospective pur- 
chasers of life insurance to purchase the dividend-pay- 
ing policies, to be very unbusiness-like to say the least 
of it. 

Owing to exigencies of business caused by the stren- 
uous competition between the dividend-paying compa- 
nies and the non-dividend paying companies, does the 
policy-holder feel that the officers oi these companies 
are justified in instructing their agents to resort to 
any methods or misrepresentations, if necessary, in 
order to secure an application for the high-priced divi- 
dend-paying policies? 

110. Unexpected Admissions. 

This is a most unexpected admission on the part 
of the officers of the participating companies on ac- 
count of their having educated the public to believe, 
that the premiums paid for the high-priced policies not 
only furnished insurance protection in case of death, 
but afforded in addition thereto an ^ investment'' 
upon which liberal ^^ dividends' would be received, 
provided the insured lives. This should clearly prove 
that there has been gross misrepresentations made by 
the officers of these companies and has placed the 
agents, who have been taught by said officers to use 
these misrepresentations in the procuring of business, 
in a very unenviable position. 

111. Term ''Dividends'' Not Used By Some Com. 

panies. 

Some participating companies are discontinuing the 
use of the term ''dividends" as applied to the refund 
of the overcharge in the premiums, which is a very 
commendable act, as it places their agents in a posi- 
tion to ^-olicit business without having to make mis- 



64 FALLACIES OF LIFE INSURANCE. 

representations. Some of the participating companies 
are allowing a refund of a considerable amount of 
the overcharge at the time the second premium is paid. 
Heretofore the refund has not been allowed until the 
third premium was paid. 

112. A New Company Every Year. 

The policy-holder should ever bear in mind that his 
policy does not participate in the surplus or dividends 
accruing on policies issued by the companies in for- 
mer years or on the policies issued in after years. 
Theoretically speaking an insurance company is a 
new company every year, i. e., all of the policies issued 
during each calendar year of the company are placed 
in a class by themselves and any policy will only par- 
ticipate in the dividends accruing on the policies is- 
sued in its class. 

The fact that this refund of the overcharge is al- 
lowed at the end of the first year or the time the sec- 
ond premium is paid should be ample proof that it 
is not a ''dividend/' because it costs the company 
all of the first premium and a part of the second, in a 
great many instances, to place the business on its 
books after deducting the amount required for re- 
serve. Therefore there was no premium left on which 
to earn a ''dividend" the first year and if the policy- 
holder receives a refund of the overcharge at the end 
of the first year the amount of money so returned w,as 
either retained by the company or else taken from 
the surplus belonging to some other class of policy- 
holders. 

113. Element of *' Dividends'' Uncertain. 

By referring to paragraph nine (9) it will be found 
that Commissioner Cabell is of the opinion that in 
many cases the earnings of the companies from pre- 
vious investment and holdings are nearly, if not quite, 
as large as the amounts which are annually distrib- 



NET COST. 65 

uted as ^ ' dividends/ ^ which the policy-holder is en- 
titled to under the terms of the policy. 

The officers of these companies now declare that the 
dividends paid upon the policy are not the true earn- 
ings of the company, but simply a refund of the excess 
premium charged. If this contention is true should 
not the policy-holder be entitled to the true earnings 
of the company which his policy gives him the right 
to receive and in addition thereto the refund of over- 
charge, which the officers of these companies say he 
is entitled to and which they declare they only hold 
in trust to be returned to him at some future time 
as * ^ dividends ? " Which of these two elements is it 
that the participating policy-holder does NOT receive? 
Can any policy-holder whose policy provides that he 
shall participate in the earnings of the company after 
reading the opinion of Commissioner Cabell and read- 
ing the declarations made by the officers of these 
companies, feel that he is getting a fair and equitable 
deal? 

114. Dividends Are Taxable. 

By referring to paragraph eighteen (18) of this opin- 
ion it will be found that Commissioner Cabell de- 
cided, that not only the dividends paid in cash are 
taxable, but also those applied to the renewal of premi- 
ums, to shorten the premium-paying period or to pur- 
chase paid-up additions and annuities. 

115. Cost of Insurance Reduced. 

By going back a few years in the history of the life 
insurance business it will be found that the cost of 
life insurance is being gradually reduced, more espe- 
cially in the last few years. 

The rates charged by the participating companies 
were originally based upon the Combined Table of 
Mortality and large amounts were added to the net 
premiums called ^'expense loading" to not only de- 



66 FALLACIES OP LIFE INSURANCE. 

fray the expense of management, but to create a sur- 
plus fund out of which extra mortality expense could 
be paid should the actual expense of mortality exceed 
that estimated in the tables. The possible life-time 
of the insured was placed at age 100 by this table. 
This ''loading" in some instances was equal to thirty- 
three and one-third per cent of the net premiums. 
After many years it was found by actual experience 
that the net rates established by the Combined Table 
of Mortality were much in excess of the actual amount 
required, so the American Table of Mortality was 
adopted for the calculation of the net rates required 
on the different forms of policies. The American 
Table of Mortality is based on the age limit, or the 
possible life-time of the insured, as 96. The adoption 
of this table materially reduced the net rates required 
for the different forms of policies. The same per- 
centage of ''expense loading" was still maintained. 

116. Deferred Dividends. 

The refunding of any overcharge made in the prem- 
ium called "dividends" during thesi3 years, was gen- 
erally deferred or withheld by the company and re- 
turned at different periods ranging from five, ten, 
fifteen and twenty years, as decided upon by the ap- 
plicant at the time the policy was purchased. These 
policies were issued on what was called the "de- 
ferred dividend" plan. The system of deferring the 
dividends worked a hardship upon the policy-holders 
by requiring the payment of excessive premiums. As 
these overcharges in the annual premiums ranged any- 
where from five to twenty dollars on each $1,000 death 
claim on the different form of policies, according to 
the age of the insured, and where the insured had 
allowed these overcharges to accumulate for many 
years, sometimes as high as tv/enty, it was a source 
of great loss to the insured's beneficiary or estate 
where death occurred before the distribution of such 



NET COST. 67 

''deferred dividends" was made and returned to the 
insured. Of course at that time some of the policies 
were issued on the ''annual dividend" or distribution 
plan, but the prospective purchaser was led to believe, 
by the agents representing these companies, that where 
the dividends were apportioned or paid annually the 
policy-holder would not receive nearly as large "divi- 
dends" as he would if he allowed them to remain in 
the hands of the company for a great number of years. 
While the "dividends" that were paid under the "de- 
ferred dividend" plan would exceed the amount paid 
when the "dividends" were paid annually, yet when 
the interest worth of the "deferred dividends" was 
taken into consideration it would be found that they 
were practically the same. 

117. New Epoch in History of Life Insurance. 

Then another epoch was added to the history of 
the several companies engaged in the business of writ- 
ing life insur,ance, when certain states passed laws 
prohibiting the issuance of any form of "deferred 
dividend" policies. These laws were passed to pro- 
tect the policy-holders against loss to his estate or 
beneficiary by death of these "deferred dividends" 
and the fact that it was necessary to pass these laws 
does not verify the statements made to the public by 
the life insurance companies, "that they never take 
advantage of their policy-holders in any way and that 
they always give the policy-holders a fair and equita- 
ble contract." 

Owing to the fact that the actual "dividends" paid 
by the participating or dividend-paying companies 
were so much less than those estimated by the com- 
panies and their agents at the time the policies were 
purchased, has created a distrust in the minds of the 
public. 



68 FALLACIES OF LIFE INSURANCE. 

118. The Agent's Arg^uments. 

The argument used by the agent of a participating 
company, in order to convince the prospective pur- 
chaser that the participating insurance wall cost him 
less than the non-participating is, ^Hhat the ^dividends' 
he will receive upon his participating policy will be 
sufficient to reduce the premium below that charged 
by the non-participating companies; that the non-par- 
ticipating companies, in order to provide for any pos- 
sible future emergencies, are required to charge much 
more than the actual cost." Granting this to be true 
then why do not the officers of the participating com- 
panies charge the non-participating premium and say 
to the prospective purchaser, 'Hhis rate is too high; 
we will be able to give you a ^dividend' or a refund 
or the overcharge on this premium?" It MUST be 
true that the premium rates of the non-participating 
companies are too high, because the officers and agents 
of the participating companies say so. 

Why is it necessary for the prospective purchaser, 
age 35, on a $1,000 death claim to be issued on the 
twenty-payment whole life plan, required to pay $38 
for the participating policy when the non-participat- 
ing rate of $30 is too much to pay? Why should 
this eight dollars be charged the policy-holder to en- 
able him to participate in the ^^ profits" of the com- 
pany? This seems about as consistent as some of the 
other arguments set forth. The answer to this prob- 
lem would undoubtedly be, **the company makes this 
charge in order to be absolutely safe." If the non- 
participating insurance costs more than the participat- 
ing insurance, why are not the non-participating com- 
panies safer than the participating companies? 

119. Overcharges Due to Lack of Knowledge. 

This overcharge in the premiums has been made by 
the participating companies since the beginning of the 
life insurance business in this country and was due 



NET COST. 69 

to the lack of knowledge of mortality statistics, pos- 
sible interest to be earned and the amount of money 
actually required for managing expenses. 

After many years of actual experience it has been 
thoroughly demonstrated that where a large number 
of policy-holders are taken into consideration it is 
possible for the life insurance companies to determine 
the average number of deaths that will occur from 
year to year, thereby enabling the companies to cal- 
culate the future cost of insuring a large number of 
people. 

120. Non-Participating Premiums. 

The premium rates adopted by the non-participating 
companies contain a very small loading for expenses, 
therefore the companies will be required to secure 
the balance of the money required for this item, from 
the savings in mortality, excess interest earning and 
by charging a small withdrawal fee. Under these 
forms of policies any cash the insured is to receive 
in the future is a guaranteed amount, there being 
no ^^ estimated dividends" to be received by the in- 
sured and by eliminating the ^^ dividend" item from 
the premiums to be paid the company, the policy- 
holder will not only avoid the possibility of the ^^es- 
timated dividends" to be received being far in ex- 
cess of those actually received, but will avoid any 
suspicion on his part, that he is not receiving the 
amount of '^dividends" he is entitled to on his policy. 

As practically all the non-participating companies 
are operating on the three and one-half per cent basis 
the average three and one-half per cent non-partici- 
pating and three and one-half per cent participating 
rates will be used in the following illustration. These 
average rates will be found to be very near the rates 
charged by all the companies operating on the three 
and one-half per cent basis. .Of course some are a 
little lower and some are a little higher, but the re- 



70 FALLACIES OF LIFE INSURANCE. 

suits shown will be in proportion to the premiums 
charged. 

121. Why Not Receive Large ''Dividends?'' 

At age 35 of the insured the average non-participat- 
ing rate is $30.10 and the average participating rate 
is $36.10 on a $1,000 death claim issued on the twenty- 
payment whole life plan, therefore $6.00 is being 
charged for particioation. If the insured feels that 
he MUST pay $36.10 for a $1,000 death claim, in- 
stead of $30.10 for one equally as reliable and con- 
taining practically the same policy conditions that he 
may be able to receive a part or perhaps all of the 
overcharge less the interest worth returned as a so- 
called ^'dividend" at some future time, why not pay 
$80.10 instead of $30.10 (non-participating rate) that 
the difference may be returned as a ''dividend?" In 
the first instance you would only receive an average 
of about sixteen per cent^ while in the latter you would 
be receiving an average of about sixty-two per cent 
on the original "investment." The following looks 
still better: 

The chances are you would receive a "dividend" of 
about three dollars at the end of the second year, or 
at the time the third premium was paid. In order 
to receive the full amount of the overcharge the "divi- 
dend" would equal about nine dollars the twentieth 
year. Therefore your "investment" would pay a 
"dividend" of about nine per cent at the end of the 
second year and gradually increasing each year to 
about twenty-five per cent the twentieth year, and you 
must not forget that in addition to this handsome 
"investment" you would be carrying a $1,000 death 
claim payable to the beneficiary or estate upon your 
death. If the insured was able to secure a handsome 
"investment" like this, would he not be justified in 
"investing" all of the money he could secure? If 
he only had fifty dollars to pay to the company to 



NET COST. 71 

buy ^ ^ dividends ' ' note the handsome returns he would 
receive for his money. 

Problem: necessary cost on insurance $30.10; $50.00 
to be returned as ''dividends;" total $80.10. 

If the company would return the same proportionate 
amount at the end of the second year as in the first 
illustration the insured would receive a ''dividend" 
of about sixty-nine per cent, gradually increasing to 
about ninety-three per cent the twentieth year. 

122. Suggestion. 

If the participating companies must resort to fur- 
nishing alluring illustrations in order to sell their in- 
surance, why not offer a guaranteed endowment of 
$10,000 for each $1,000 death claim purchased at age 
21, or any age thereafter up to age 90, providing the 
insured will pay the premium now required on a whole 
life continuous premium policy for the different ages, 
the $1,000 death claim to mature as a $10,000 en- 
dowment at age 110. This would be just as consistent 
as some of the other forms of policies now being 
sold. 

If the insurance company would offer such a prop- 
osition for sale there would undoubtedly be a great 
deal of it sold, because it is very easy to find persons 
ever ready to take a chance to get SOMETHING for 
NOTHING, or to take a chance to get enormous re- 
turns for a small investment, never stopping to inves- 
tigate the proposition and see whether they really have 
a chance of receiving the promised returns, or not. 

Any whole life policy matures as an endowment for 
its face value at ,age 96, and if a life insurance com- 
pany, with its reputation for always doing good, and 
never taking advantage of its policy-holders in any 
way whatsoever, would offer $10,000, instead of $1,000 
as they now offer on each $1,000 death claim, there 
would be many persons accept the same, only they 
would buy a $10,000 policy which would mature as 



72 FALLACIES OP LIFE INSURANCE. 

$100,000 at age 110, never stopping to think that they 
had no chance of living to be 110. 

In order to sell this "guaranteed investment pol- 
icy" it might be necessary for the agent of the com- 
pany to select some prominent and influential man, 
most generally a banker or prominent business man, 
well known in the locality in which the agent wished 
to ''make a killing," and in order to use his valuable 
name either give him one of these valuable contracts, 
or else sell him one at a great reduction and agree 
to give this prominent man for the use of his name, 
a part of the commissions on all business the agent 
would place in that locality. With the reputation of 
the life insurance company and the local influence of 
this prominent man, the agent v/ould have no trouble 
iti placing a large number of these valuable contracts. 

123. The Best Investment. 

If the prospective purchaser of life insurance will 
purchase the protection desired on the renewable term, 
where temporary protection is needed, and on the 
whole life continuous premium plan where permanent 
protection is needed for the smallest cost, and elimi- 
nate all of the elements of ''dividends," savings or 
"investments" or any special inducement or any poli- 
cies with coupons to be clipped and purchase legiti- 
mate investments for the money he has for invest- 
ment, he will be investing his money the best pos- 
sible way to receive legitimate returns. 

A full explanation of the plans whereby objection- 
able forms of policies may be reformed without loss 
to the insured, thereby reducing the actual cost of 
the same, wall be found in the analysis of the differ- 
ent forms of policies in the following pages. 



ONE YEAR TERM POLICY. 73 



CHAPTER V 

ONE-YEAR TERM OR STEP-RATE 
POLICY 

Policy No. 1. Premium $11.59. 

Age 35. Participating. Death Claim $1,000. 

American Table of Mortality and Three Per Cent Int. 

124. Analysis. 

This policy is written to cover one year of insur- 
ance and under the conditions contained in the same 
the company agrees to pay $1,000 to the beneficiary 
designated therein, or to the insured ^s executors, ad- 
ministrations or assigns, provided the insured dies 
within one year from its issue date and the company 
assumes no further liability as the policy expires at 
that time without value. 

125. Net Premium Required. 

The net natural premium required for this policy 
is $8.69, which with its interest worth will enable the 
company to assume the liability of a $1,000 death claim 
for one year. The $8.69 payable in advance is the 
NET premium or cost, as it contains no expense load- 
ing or money contributed to pay the expense of the 
company's management, it being the assumed mortal- 
ity expense during the year. By adding $2.90 to the 
net premium which is the amount contributed by the 
insured to pay his share of the expense of manage- 
ment of the company, w^e have a total of $11.59, being 
the gross natural premium the insured is required to 
pay. 



74 FALLACIES OF LIFE INSURANCE. 

126. Policy Expires at End One Year. 

As this policy terminates at the end of one year 
without value, should the insured desire insurance 
after that date it will be necessary for him to secure 
a new contract with the company by passing a sat- 
isfactory medical examination, and he will be required 
to pay the rate at his attained age, 36. By referring 
to the table, article 329, which gives the net and 
gross natural premiums each year to age 96, which is 
the possible life-time of the insured, the insured will 
note the gradual increase in the yearly premium re- 
quired for this form of policy. 

127. Mortality and Managing Expense. 

By referring to the mortality table article 328, the 
insured will see that out of each 1,000 persons, age 
35, living at the beginning of the year, there will be 
8.95 die during the year. Therefore the company 
would experience a mortality expense of approximately 
$8,950, providing that each person was carrying $1,000 
insurance. As each policy-holder is required to pay 
$8.69 in advance, the company would receive from the 
1,000 policy-holders $8,690. This amount with its 
interest worth at three per cent of $260 will equal the 
$8,950. As each policy-holder will be required to pay 
$2.90 additional for managing expenses the company 
would also have $2,900 for this item. It is only fair 
to presume that there would be more deaths occur in 
each 1,000 persons at age 45 than at age 35. The table 
shows that at age 45 out of each 1,000 persons there 
would be 11.16 die. Therefore the company would 
have a mortality expense of approximately $11,160 or 
an increase of $2,210 in the ten years. In order to 
meet this additional expense each policy-holder will be 
required to pay $10.84 at age 45, instead of $8.69 (age 
35), therefore the company would receive from the 
1,000 policy-holders $10,840. This amount with its in- 
terest worth at three per cent of $320 will equal 



ONE YEAR TERM POLICY. 75 

$11,160. At age 65 the number of deaths per 1,000 
would increase to 40.14. At age 75 it would increase 
to 94.37. At age 85 it would increase to 235.55. At 
age 95 there would be 1,000 deaths. Thus it will be 
clearly seen that in order to meet this steadily in- 
creasing mortality expense under this form of policy 
the company will be required to increase the premium 
each year accordingly. 

128. Cost of One Year Term Insurance Used as a 

Basis. 

The cost of one year's insurance, which is the basis 
of calculating the cost on all forms of policies, is 
given in detail in article 329 to fully illustrate the 
steadily increasing cost of $1,000 death claim where 
practically all of the $1,000 is actual insurance. It 
also shows the amount the company must receive in 
order to assume the liability of a $1,000 death claim 
at tne different ages where practically all of the death 
claim is assumed by the company. This condition does 
not exist in any other form of policy. 

129. One Year Term or Step-Rate Policy Unpopular. 

The insuring public have been educated by the 
life insurance companies to believe that this form of 
policy is the most expensive form of life insuranc3 
and in order to mislead the insured into the thought 
that he can avoid or ^'side-step," as it were, this stead- 
ily increasing yearly cost they have devised level 
premium forms of policies where the insured pays the 
same premium each year for life, or for a limited num- 
ber of years. These different forms of policies will be 
explained more fully in the following pages. 

130. Actual Insurance Reduced Where Reserves Arc 

Maintained. 

Insured must bear in mind that any money he has 
paid to the company each year, in excess of the amount 



76 FALLACIES OF LIFE INSURANCE. 

required to meet the mortality expense and his share 
of managing expenses, reduces the amount the com- 
pany has at risk. This excess money and its interest 
worth is held by the company to reduce its future 
liabilities under the policy. The money so accumu- 
lated and held by the company is called ''legal re- 
serve" or ''self -insurance fund'' and constitutes the 
cash value of the policy, or the cash the company 
will return to the insured upon surrender .of the pol- 
icy, most commonly called "cash surrender value." 

131. Illustration. 

"Where the policy is written for $1,000, 3 per cent 
basis, on the whole life continuous premium plan at 
age 35 of the insured, the legal reserve or self-insur- 
ance fund at age 64, will amount to about $500. Con- 
sequently should the death of the insured occur at that 
time the company's liability would only be $500. This 
$500 represents the actual insurance at that time. The 
$500 reserve or excess cash which the insured has paid 
to the company, represents the cash surrender value of 
the policy. 

132. Plan for Ascertaining Actual Insurance in Death 

Claim. 

By referring to the table of net premiums (3 per 
cent), article 329, it will be found the rate for a 
$1,000 death claim at age 64 is $35.80, therefore where 
the company only has $500 at risk the net cost would 
be $17.90. In order to ascertain the actual insur- 
ance contained in any form of policy at any year, it 
is only necessary to subtract the cash surrender value 
or the self-insurance fund from the death claim, the 
balance being the actual insuraiice contained in the 
policy or the amount the company has at risk thai 
year. For example let us take a $1,000 policy issued 
at age 40, 3 per cent basis, on the twenty payment 
life plan the tenth year. By referring to the table 



ONE YEAR TERM POLICY. 77 

of terminal net or cash surrender values, article 333, 
we find that the reserve accumulated the tenth year 
is $283.23, therefore the company has only $716.77 at 
risk. This reduction of the actual insurance at age 
50 will offset the increased liability for the $1,000 
death claim at the age of 50. By multiplying $716.77 
(the actual insurance contained in the policy) by $13.38 
which is the net cost of a $1,000 death claim at age 
50, the attained age of the insured, we have $9.59 
which is the net cost for the actual insurance or the 
amount the company has at risk. Any money paid 
the company in excess of this amount is paid to create 
the reserve fund and pay the expense of management 
and to pay any possible '^ dividends'' accruing on the 
policy should it be issued by a participating com- 
pany. The net cost in any form of policy, whether new 
or old, increases as the insured grows older. 

These illustrations are simply used to help explain 
the different forms of policies to be taken up hereafter 
which provide for the payment of a limited number 
of premiums during the first years of the policy and 
at the younger age of 1he insured, but require the 
payment of sufficient money together with its interest 
worth, to pay for the actual insurance in advance, 
for all the insurance years from the age of the insured 
at the issue date of the policy to age 96. 

133. Renewable Term Policy. 

Some companies by increasing the gross rate yearly 
on this one year term form are issuing this policy 
giving the insured the privilege of renewing the same 
each year, by paying the increased rate stipulated 
for the advanced year, and this is done without a 
medical re-examination. This form of policy gives 
the insured the most actual insurance in each $1,000 
death claim, by paying the increased yearly cost each 
succeeding year, and this policy is generally written 
to cover all the years to about age 65, when by its 



78 FALLACIES OF LIFE INSURANCE. 

terms it must ■usually be changed to some other form. 
As the rate increases or ^'steps-up'' each year this pol- 
icy is most generally called '^step-rate'' insurance. 

134. Term Policies Generally Have No Surrender 

Values. 

This form of policy has no surrender values or 
money to be returned to the insured upon surrender 
of the same, it being clearly shown that all of the 
premiums paid have been consumed by the company; 
and the policy-holder does not like to see all, though 
it may be a small amount he has paid in for insur- 
ance, disappear at any time he ceases his premiums, 
as is the case on this form of policy. The companies 
have educated the public to discountenance this form 
of policy, leading them to believe, that this loss does 
not occur and that they can ''get through paying for 
insurance'' on the higher-priced forms, therefore this 
form of policy is very unpopular. 

135. Death Benefit Fund. 

The insured should ever remember that a life in- 
surance company is simply the combination of a large 
number of policy-holders, who contribute a certain 
sum of money to be paid in one payment or a series 
of payments extending over a number of years, to 
establish a benefit fund, out of which a stipulated 
amount is to be paid to a third party, upon the death 
of one of its policy-holders; and that the only way 
this fund can be established is by the money to be 
paid in by its policy-holders plus its interest worth, 
and as long as the company pays its death claims 
this expense must be paid by the policy-holders; and 
when the insured is led to believe that he can join 
this combination and pay in a certain sum of money 
each year for its benefits and be able to withdraw 
from the organization at any future time and have re- 
turned to him all the money which he has contributed 



ONE YEAR TERM POLICY. 79 

and its interest worth, is certainly a gross misrepre- 
sentation. 

136. Level Premium Does Not Reduce Actual Cost. 

Where the company receives a larger premium year- 
ly on $1,000 of death claim during the earlier years 
of the policy or during the younger ages of the in- 
sured, does not keep the cost of the actual insurance 
in the policy from increasing, but the excess premium 
paid, which is set aside by the company to be used 
in after years called ''legal reserve," reduces the 
amount of the actual insurance contained in the policy 
or the amount the company has at risk, from the very- 
first year ; and the payment of this excess premium 
from year to year improved by its interest worth, ac- 
cumulates a reserve fund equal to the amount the 
company has at risk, or the amount the company is 
required to pay upon the death of the insured. For 
illustration, should the insured purchase a policy at 
age 35, the premiums he would be required to pay 
for a $1,000 death claim would seem very small to 
him when he had attained the age of 65 or 70, but the 
excess money he had paid during the earlier years 
would reduce the actual insurance contained in the 
policy to almost nothing. 

The net premiums charged by the company on any 
form of permanent insurance improved at the rate of 
interest adopted by the company, w411 more than equal 
the death claim, provided the insured lives to his 
full expectancy. For example, a $1,000 death claim 
issued at age 35 on the whole life continuous premium 
plan by a company operating on a three per cent 
basis, the net annual premium is $21.08; the life ex- 
pectancy at age 35 is 31 years or age 66; the net 
premium of $21.08 paid annually in advance for 31 
years improved at three per cent interest will amount 
to $1,085.66, therefore if insured lives to age 66, his full 
expectancy, the company will have derived more money 



80 FALLACIES OP LIFE INSURANCE. 

by the payment of this premium than it is required 
to pay upon the death of the insured. The interest 
on this money held by the company from year to year, 
is used to help make up the loss sustained by the 
company, by the death of those which have occurred 
in earlier years. The interest derived from this money 
and the premiums paid where the insured lives to 
age 70, four years beyond expectancy, makes up for 
the loss sustained by the company on the policy-holder 
who died at age 62, four years before his expectancy. 
The interest worth of this money and the premiums 
paid where the insured lives to age 86, twenty years 
beyond expectancy, makes up the loss sustained by the 
company where the policy-holder died twenty years 
before expectancy. The policy-holder who lives to age 
,96 pays the loss sustained for those who died the first 
year. 

137. High Premiums Destroy Actual Insurance in 

Death Claim. 

Insured should purchase his insurance upon a plan 
which gives him the most actual insurance at the 
smallest net cost. Any form of policy requiring the 
payment of a premium in excess of its cost each year 
will destroy too soon the very element of benefit for 
which it was purchased, namely, PROTECTION. 

Any form of policy which requires the payment of 
a premium sufficient to meet the estimated mortality 
expense and a small contribution to pay expense of 
management of the company, whether the company be 
operating under the legal reserve or assessment plan, 
affords the greatest amount of actual insurance in 
the death claim. 

138. Both Legal Reserve and Assessment Policies 

Eventually Lose Their Insurance Worth, 

Any legal reserve (^'old line") or any assessment 
form of policy issued to cover a long term of years, 
will eventually lose their worth so far as actual in- 



ONE YEAR TERM POLICY. 81 

surance is concerned. The assessment form always 
contains practically a full thousand of actual insur- 
ance in each thousand dollars of death claim, and the 
cost for same in later years becomes too high to war- 
rant further outlay on the part of the insured; and 
the legal reserve forms written to cover many years, 
lose their worth for actual insurance, either because 
of the yearly increase in cost on forms that contain 
practically a full $1,000 of actual insurance in each 
$1,000 of death claim, or they lose their worth for 
actual insurance because the insured has paid the com- 
pany a large amount yearly for many years, more than 
the worth of the actual insurance in the policy during 
such years, and the amount so paid or the accumula- 
tion therefrom is so near equal to the full amount of 
the death claim, that the policy has lost its value so 
far as actual insurance is concerned. 

139. Assessment Insurance Could Be Made Popular. 

Assessment insurance would be a great deal more 
popular with the public, if they had the proper un- 
derstanding of the true conditions existing regarding 
the contract. There would be a great deal more insur- 
ance carried in the assessment companies today by 
those who cannot afford to carry the high-priced in- 
surance sold by the legal reserve companies, if it were 
not for the fact that the assessment plan is so dis- 
credited by the legal reserve companies' representa- 
tives. The opportunity is never lost to show to the 
insured that his policy has no surrender values; that 
all of his premiums are lost and that his rates are 
liable to be increased; and that the only way left 
for the insured to get any returns from his policy, is 
to die; and the insured is led to believe that these 
losses do not occur with the legal reserve companies 
and that he does not have to die to get his insurance. 

A full explanation of the twenty-year term form of 
policy will be found in the following chapter. 



82 FALLACIES OP LIFE INSURANCE. 

CHAPTER VI 

TWENTY- YEAR TERM POLICY 

Policy No. 2. Premium $15.27. 

Age 35. Participating. Death Claim $1,000. 

American Table of Mortality and Three Per Cent Int. 

Blank Life Insurance Co., hereby insures the life of 
John Doe (hereinafter called the insured) in the sum 
of one thousand dollars for twenty years from the 
date hereof, which amount the company agrees to pay 
at its Home Office, to Mary Doe, his wife, (or to such 
other beneficiary as may be designated by the insured 
as hereinafter provided), if living, otherwise to the 
insured's executors, administrators or assigns upon due 
proofs of the death of the insured, this policy being 
then in force, subject to all the benefits, privileges 
and conditions stated on this and the following pages 
hereof, all of which are hereby made a part of this 
contract as fully as if recited at length over the sig- 
natures hereto affixed. 

Signed Signed 

Note : For conditions, privileges and restrictions 
see Chapter XIV. 

The death claim provided in the policy may be pay- 
able as an annuity or instalments, see Chapter XI. 
140. Analysis. 

Policy number 2 as shown above is written to cover 
twenty years of insurance to be paid for in twenty 
equal annual instalments and provides to pay $1,000 
upon the death of the insured to the beneficiary desig- 
nated, providing the death of the insured occurs within 
twenty years from its issue date and providing all 



TWENTY YEAR TERM POLICY. 83 

premiums have been paid to date of demise. As the 
premiums on this policy are to be paid yearly for the 
full number of years the policy is written to cover 
and there being no extra charge made in the premiums 
for any investment features other than '^dividends" 
this form of policy will furnish insurance at the small- 
est net cost to the insured should death occur during 
the twenty years, providing the company returns to 
the insured each year the overcharge in the premium 
made for ''dividends," The average non-participating 
premium for a $1,000 death claim at age 35 for the 
twenty-year term policy is $14.25, therefore the differ- 
ence in premiums of $1.02 represents the overcharge 
made for ''dividends.'' 

As this form of policy is only written to cover a 
specified number of years, the number of years speci- 
fied being only a part of the years the insured may 
live, it is called TEMPORARY insurance. Where the 
policy is written to cover all of the years the insured 
may live, from the year the policy is issued to age 
96 American Table of Mortality, it is called PERMA- 
NENT insurance. 

This policy expires without cash values at the end 
of the twentieth year, or at age 55., If the insured at 
that time desires insurance it will be necessary for 
him to secure a new policy by passing a satisfactory 
re-medical examination and paying the premium for 
his attained age of 55. 

141. Cash Value. 

Under this form of policy the insured is only re- 
quired to pay premiums sufficient to pay the expected 
mortality expense of the company and a small amount 
each year to pay managing expenses, at a level rate 
for the twenty years. As he has not been required to 
pay any excess money required to create the reserve 
or self-insurance fund for the number of years after 
the twentieth, which represent the possible life-time of 



84 FALLACIES OP LIFE INSURANCE. 

the insured from age 55 to 96, which is 41 years, the 
company has no cash to return to the insured for sur- 
render at any time. 

In order that the insured may pay an equal pre- 
mium each year for the twenty years, he must pay 
enough money in excess of the actual cost during the 
early years of the policy to offset the increase in mor- 
tality expense in the latter years. This excess money 
paid and its interest worth accumulations, which the 
company must hold to meet the increase in mortality 
expense in the latter years of the policy, increases 
yearly to the end of the fourteenth year, at which 
time the company takes a part of the accumulations 
and adds to the net premium paid each year thereafter 
to meet the increased mortality expense. At the end 
of the twentieth year this reserve is entirely con- 
sumed, therefore the policy has no cash surrender 
value. 

142. Death Claim Practically All Insurance Under 
Any Term Form of Policy. 

This is a very popular form of policy because it 
furnishes insurance or protection for twenty years at 
a level rate and at a very small cost to the insured. 
In each $1,000 death claim the actual insurance con- 
tained in the policy is at all times practically $1,000. 
The accumulated reserve or self-insurance fund the 
fourteenth year, at which time it is the greatest, is only 
$19.63, therefore the death claim never contains less 
than $980.37 of actual insurance in each $1,000 death 
claim. 

143. Five, Ten and Fifteen Year Term Policies. 

By reducing the annual premium a small amount 
each year a great many companies issue this form of 
policy to cover a term of five, ten and fifteen years. 
The same general conditions of the twenty year term 
policy apply to the five, ten and fifteen year term 
policies. - 



TWENTY YEAR TERM POLICY. 85 

The one year term policy may be carried as a twenty 
year term policy where the premium paid is sufficient 
to pay for the privilege of renewing each year with- 
out a re-medical examination, the only difference being 
that under the one year term form the premium would 
increase each year, while under the twenty year term 
plan it remains an equal amount from year to year. 

144. Twenty Year Renewable Term. 

By adding an amount on the average of one dollar 
at age 21, increasing to $3 at age 55, to the gross pre- 
mium charged for $1,000 under this form of policy, 
the company will give the insured the privilege of 
renewing this policy any year during its continuance 
for an equal amount and for an equal number of years 
without a medical re-examination by paying the pre- 
mium rate charged at the attained age of the insured, 
providing such renewal is made before the insured 
has attained the age of 55. The five, ten and fifteen 
year term policies may be renewed under the same 
conditions. 

These forms of policies may also be exchanged any 
year, without medical re-examination, for any of the 
higher-priced forms of policies issued by the com- 
pany upon the payment of the premium charged for 
the form selected for the attained age of the insured. 

The excess premium charged for the renewal priv- 
ilege is sufficient to offset the additional liability as- 
sumed by the company, where the insured has the 
privilege of renewing or exchanging without medical 
re-examination. If all of the policy-holders carrying 
the term forms of policies would renew or exchange 
the same, the company would hardly be required 
to charge a higher premium for this renewal priv- 
ilege, but the fact that the policy-holders in poor 
health, who would not need insurance or would be 
able to secure insurance from other companies, would 
not be so liable to renew, the company would experi- 



86 FALLACIES OF LIFE INSURANCE. 

ence a heavier mortality expense than the original 
term premium would pay. 

145. Renewable Term Insurance Should Always Be 
Purchased. 

On account of the SMALL extra charge made in the 
premium for the renewal privilege the insured would 
not be justified in purchasing the straight term form 
of policy. Let us suppose that the twenty year re- 
newable term form was selected and the insured's 
health should become impaired by sickness or acci- 
dent, we will say the eighteenth year, so that death 
should be sure to occur in the next five or ten years, 
the insured would be sure to renew the policy at the 
end of the twentieth year and be willing to pay the 
increased premium for his attained age and would 
also feel that the small extra premium paid for the 
renewal privilege had offered the best investment he 
had ever made. 

146. Renewable Term Is One Form of Permanent 
Insurance. 

The renewable term policy is one form of permanent 
insurance and the permanent form of insurance should 
always be selected. Unless the insured is in a posi- 
.tion to earn at least seven per cent, on his money and 
if he has the extra money with which to purchase his 
insurance on the whole life continuous premium plan, 
the cash surrender value available under the whole 
life continuous premium policy will reduce the cost 
of the insurance below that of the renewable term 
policy where the insurance is only desired for five 
years or more. Therefore if the insured has the money 
and cannot earn over seven per cent, interest on it, 
by paying to the company the extra premium required 
the whole life continuous premium policy will afford 
protection at a less cost than that furnished by the 
renewable term policy. 



TWENTY YEAR TERM POLICY. 87 

147. One of the Many Injustices. 

One of the many injustices now practiced by the 
life insurance companies can best be illustrated on this 
form of policy. 

The net premium required at age 21 on the twenty 
year term policy is $8.23. By adding forty-two per 
cent, of the net premium, which is $3.45 for expense 
loading, we have a gross premium required at age 21 
of $11.68. At age 55 the net premium required on 
this form of policy is $35.24. By adding forty-two per 
cent, of the net premium ($35.24), which is $14.80, 
we have the gross premium of $50.04. This will be 
found to be the average gross premium charged by the 
participating companies; $3.45 is charged for manag- 
ing expenses at age 21 and $14.80 at age 55, or a dif- 
ference in expense loading of $11.35 for the two ages. 
Why should the policy-holder who purchases a policy 
at age 55 be required to pay $11.35 more for managing 
expenses than the policy-holder who purchases his 
policy at age 21? Does this seem consistent? 

The difference in the charge for expense loading for 
these two ages does not appear at a glance to be of 
much consequence on a $1,000 death claim, but let us 
suppose that ^^A'^ purchased a $10,000 policy at age 
21 on the twenty year term plan and also purchased 
a $10,000 policy at age 55. On the first policy he 
would be required to pay the company for expenses 
in the twenty years $690. On the second policy he 
would pay $2,960 in twenty years. 

148. Dividend Delusion. 

Of course these policies being issued to ^^A'' by a 
participating or dividend paying company, it would be 
necessary for the company to pay a ^'dividend'' on 
these policies. On the first policy the first '^ dividend'^ 
would probably be about $6 on the premium of $116.80 
at the end of the second year, gradually increasing 
each year to perhaps $15 the twentieth year. Of course 



88 FALLACIES OF LIFE INSURANCE. 

the ^^ dividend '^ would have to increase each year in 
order that ^^A/' would be satisfied that he was getting 
all the ^'dividends" he was entitled to. 

If the company returned all of the charge made for 
participation each year the ^^ dividends" would not be 
an increasing amount from year to year, so the com- 
pany in order to make it appear that the ^ ^ dividends ' ' 
are really increasing, withholds the charge made for 
participation the first year and with the amount of 
the overcharge they do not return during the early 
years of the dividend paying period plus the interest 
worth, they are able to pay large ^^ dividends" the last 
years. At the time he purchased the second policy he 
would be required to pay a premium of $500.40. As 
this premium is four and a half times as large as the 
first premium paid, consequently in order to be satis- 
fied he would expect a ''dividend" about four and 
one-half times as large as the first one paid, or about 
$26, this amount gradually increasing to about $70 
the twentieth year. 

149. Company Requires Large Expense Loading to 
Pay Large ''Dividends." 

Had the company required the same amount of ex- 
pense loading on the second policy as they required 
on the first, they would have been unable to pay this 
large "dividend" and if "A" had not received any 
larger "dividend" on the second policy than he did 
on the first, it is only fair to presume that, he would 
have been very much dissatisfied and would have per- 
haps allowed his policy to lapse. So in order to thor- 
oughly satisfy "A" so he would continue his policy, 
they simply required him to pay more for expense 
loading and "dividends" on the second policy than 
they did on the first. 

The amount of reserve the company had on which 
to earn a "dividend" the nineteenth year on the first 
policy that "A" purchased was $12.90, all of the bal- 



TWENTY YEAR TERM POLICY. 89 

ance of the money which had been paid to the com- 
pany in premiums having been used to pay death 
claims and managing expenses, yet the company would 
be able to pay a ^^ dividend" of about $15. 

Supposing ^'A" had purchased a twenty payment 
policy for $10,000 at age 21. The reserve accumu- 
lated the nineteenth year would have been $4,359.50. 
If the company can legitimately pay a ^^ dividend" of 
$15 where the accumulated reserve on the policy at 
the beginning of that year is only $12.90, what ^^ divi- 
dend" should they be able to pay on a policy where 
the accumuated reserve is $4,359.50? 

By referring to the table of net premiums. Article 
330, the reader will find the net premiums for the dif- 
ferent forms of term policies. The difference in the 
net premiums on the three per cent, basis and the three 
and one-half per cent, basis is very small. By adding 
thirty-five per cent, of the net premium to the net 
premium shown in this table the average gross pre- 
mium will be ascertained. This will give a fair and 
equitable cost for the different ages for participating 
premiums. 

The gross premium found by adding thirty-five per 
cent, of the net premium to the net premium will be 
found to be very close to the average premium charged 
by the non-participating companies for ten, fifteen 
and twenty year renewable term policies. 

As the one year term is used as a basis for the 
twenty year term and also the endowment, the differ- 
ent forms of the endowment policies will be next ex- 
plained. 



90 FALLACIES OP LIFE INSURANCE. 

CHAPTER VII 

TWENTY^ YEAR ENDOWMENT POLICY 

Policy No. 3. Premium $50.63. 

Age 35. Participating. Death Claim $1,000. 

American Table of Mortality and Three Per Cent. 

Interest. 

The Blank Life Insurance Company, in consideration 
of the statements and declarations contained in the 
application for this policy a copy of which applica- 
tion is hereto attached, hereby referred to and made a 
material part of this contract, and which statements 
and declarations the insured reaffirms by the accept- 
ance of this policy, and in further consideration of the 
payment to it in advance of fifty and 63/100 dollars, 
on or before the second day of January of each year 
until twenty full years' premiums shall have been paid, 
or until the prior death of the insured, does hereby 
insure the life of John Doe, herein referred to as the 
insured, in the sum of one thousand dollars, and doe3 
hereby agree to pay said amount provided this policy 
shall then be in force, at its home office, to the insured^ 
if living, on the second day of January, 1933, or in 
the event of his death prior to said date, to pay said 
amount, upon satisfactory proof of the death of the 
insured during the continuance in force of said policy, 
to Mary E. Doe, his wife, if then living, if not, to the 
executors, administrators or assigns of said insured, 
after deducting therefrom the premiums, if any, for 
the balance of the policy year and all indebtedness 
of the parties to this contract to the company. 

Subject in all cases to the conditions, benefits and 



TWENTY YEAR ENDOWMENT POLICY. 91 

privileges stated on the second and third pages hereof, 
all of which are made a part of this contract as fully 
as if written over the signatures hereto affixed. 

Signed Signed 

Table of Loan and Surrender Values. 





Cash or 


Paid-up 


Extended In 


surance 


Ye.ars 


Loan Value 


Policy 


(Years) 


(Ms.) 


(Cash) 


3 


$107.50 


$168 


10 


10 


. . . 


4 


145.91 


222 


15 


3 


• » . 


5 


185.71 


278 


15 





$ 75 


6 


226.93 


331 


14 





154 


7 


269.66 


382 


13 





236 


8 


313.94 


436 


12 





313 


9 


359.85 


485 


11 





388 


10 


407.45 


538 


10 





459 


11 


456.84 


587 


9 





524 


12 


508.08 


636 


8 





586 


13 


561.28 


684 


7 





646 


14 


616.55 


731 


6 





703 


15 


674.00 


777 


5 





758 


16 


733.77 


823 


4 





811 


17 


796.05 


868 


3 





861 


18 


861.01 


913 


2 





909 


19 


928.91 


957 


1 





956 


20 


1000.00 











Note : Cash surrender values here given are the 
full accumulated reserve^ for the years specifiea. 

Where the cash surrender values given for this form 
of policy are less than those given above, the differ- 
ence represents the fee charged for cancelation or sur- 
render. Some companies do not charge a surrender 
fee. 

A full explanation of the conditions, privileges and 
restrictions for this policy will be found in Chapter 
XIV. 



92 FALLACIES OP LIFE INSURANCE. 

150. Analysis. 

Policy number 3 for $1,000 as shown above is writ- 
ten to cover twenty years of insurance and mature an 
endowment of $1,000, to be paid for in twenty years. 
The first five premiums pay for twenty years of insur- 
ance and $75, together with any so-called ^ *^ dividends " 
in excess if insured lives. 

The average necessary rate at a fixed yearly pre- 
mium at age thirty-five for $1,000 Temporary Stand- 
ard Death Claim is $15.27, therefore $35.36 of each 
premium is an overcharge made to create the endow- 
ment fund and all payments made to date of de- 
mise will be lost to the estate if the insured dies within 
the twenty years, except that part returned as so- 
called ''dividends." 

Should the death of the insured occur at any time 
within twenty years from its issue date the policy pro- 
vides for the payment of $1,000 exclusive of ''divi- 
dends." There is no provision made for the payment 
of any insurance benefits after twenty years as the 
policy expires at that time. 

By the payment of the overcharge contained in the 
premium, required to create the endowment fund, the 
insured reduces the actual insurance to nothing at the 
end of the twentieth year as the endowment fund of 
$1,000 equals the death claim at that time. The pre- 
miums paid and their interest worth are sufficient to 
carry the insurance and mature the endowment in 
twenty years, including any possible "dividends." 
The overcharge in premiums enables the company to 
give increased surrender values. 

As the cash value or self -insurance fund IN- 
CREASES the actual insurance DECREASES, and the 
cost to the insured INCREASES. The CASH VALUE 
is NOT insurance. 

151. Illustration of Account to End of the Fifth Year. 

By the payment of the overcharge contained in the 



TWENTY YEAR ENDOWMENT POLICY. 93 

premiums, required to create the endowment fund, the 
insured reduces the actual insurance contained in the 
death claim to $814.29 at the end of the fifth year. 
The five premiums paid and their interest worth are 
sufficient to carry the insurance and mature an en- 
dowment of $75 in twenty years, including any possi- 
ble ''dividendSo" 

If the insured is alive and all premiums have been 
paid in cash to the end of the fifth year and there has 
been no loan secured thereon, the policy guarantees 
$185.71 in cash with ^^ dividends," if any, for surren- 
der. Or in lieu of the $185.71 cash to become ^'paid- 
up" for $278, exclusive of any '^dividends" and pay- 
able at the end of the original endowment period 
or at previous death. Or to continue the $1,000 death 
claim for the next fifteen years without further pre- 
mium payments and if the insured is then alive to pay 
$75 in cash the twentieth year, or at the time the 
original endowment would have been payable. 

Itemized Statement. 

Death Claim, exclusive of ^^ dividends" $1,000.00 

Cash value, exclusive of ^^ dividends" 185.71 



Actual insurance, exclusive of ' ^ dividends ".. $ 814.29 

Annual premium including ^^ dividends" 50.63 

Interest worth of cash value at five per cent. 9.28 



Total yearly cost, including di vidends . . . . $ 59.91 
152. Illustration of Account to End of the Tenth Year. 

By the payment of the overcharge contained in the 
premium, required to create the endowment fund, the 
insured reduces the actual insurance contained in the 
death claim to $592.55 at the end of the tenth year. 
The ten premiums paid and their interest worth are 
sufficient to carry the insurance and mature an endow- 
ment of $459 in twenty years, including any possible 
** dividends." 



94 FALLACIES OF LIFE INSURANCE. 

If the insured is alive and all premiums have been 
paid in cash to the end of the tenth year and there 
has been no loans secured thereon, the policy guaran- 
tees $407.45 in cash with '^dividends/' if any, for 
surrender. Or in lieu of the $407.45 cash to become 
'^paid-up" for $538, exclusive of any ^^ dividends" 
and payable at the end of the original endowment 
period or at previous death. Or to continue the $1,000 
death claim for the next ten years without further 
premium payments and if the insured is then alive 
to pay $459 in cash the twentieth year, or at the time 
the original endowment would have been payable. 

Itemized Statement. 

Death claim, exclusive of ^ ^ dividends ' ' $1,000.00 

Cash value, exclusive of ^^ dividends" 407.45 



Actual insurance, exclusive of ^ ' dividends ' \ . $ 592.55 
Annual premium, including ^ ^ dividends "... . 50.63 
Interest worth of cash value at five per cent. 20.37 



Total yearly cost, including '' dividends ".. $ 71.00 

153. Illustration of Account to End of the Fifteenth 
Year. 

By the payment of the overcharge contained in the 
premium, required to create the endowment fund, the 
insured reduces the actual insurance contained in the 
death claim to $326 at the end of the fifteenth year. 
The fifteen premiums paid and their interest worth are 
sufficient to carry the insurance and mature an endow- 
ment of $758 in twenty years, including any possible 
^ ^ dividends. " 

If the insured is alive and all premiums have been 
paid in cash to the end of the fifteenth year and there 
has been no loans secured thereon, the policy guaran- 
tees $674 in cash with ^'dividends," if any, for sur- 
render. Or in lieu of the $674 cash to become '* paid- 
up" for $777 exclusive of any '* dividends" and pay- 



TWENTY YEAR ENDOWMENT POLICY. 95 

able at the end of the original endowment period or 
at previous death. Or to continue the $1,000 death 
claim for the next five years without further pre- 
mium payments and if the insured is then alive to pay 
$758 in cash the twentieth year, or at the time the 
original endowment would have been payable. 

Itemized Statement. 

Death claim, exclusive of ''dividends" $1,000.00 

Cash value, exclusive of ' ' dividends " 674.00 



Actual insurance, exclusive of '' dividends ' \ . $ 326.00 
Annual premium, including ''dividends".... 50.63 
Interest worth of cash value at five per cent. 33.70 



Total yearly cost, including " dividends ".. $ 84.33 

154. Overcharges Reduce the Death Claim. 

By the payment of the overcharge of $35.36 required 
to create the endowment or self-insurance fund and 
pay for the extra "dividends'' which would be paid 
on the endowment policy in excess of those that would 
have been paid upon the term policy, the insured has 
reduced the actual insurance contained in the death 
claim to $814.29 the fifth year. The insured has accu- 
mulated a cash surrender value or self-insurance fund 
the fifth year of $185.71. The interest worth of this 
cash, together with the annual premium required, 
equals $59.91, which represents the full cost to the 
insured of the actual insurance the fifth year should 
his death occur. As this cash value or self-insurance 
fund increases each year the actual insurance de- 
creases correspondingly and the cost increases each 
year in proportion to the sum of the increasing and de- 
creasing amounts. 

155. One Year Term Used as Basis for Calculating 
cost. 

The one year term policy is the basis of calculation 
for all forms of "endowment insurance." By refer- 



96: FALLACIES OF LIFE INSURANCE. 

ring to the Table, Article 329, we find that the net 
cost for $1,000 of insurance at age 40, the attained age 
of the insured, is $9.51. As there is only $814.29 of 
actual insurance remaining in the death claim the 
fifth year, the actual cost to the company for carrying 
this liability is only $7.74. The net annual premium . 
or the amount the company must receive to pay the 
mortality cost and create the reserve or endowment 
fund required is $41.97, deducting the mortality cost 
of $7.74, leaves a balance of $34.23 to be added to the 
reserve or endowment fund, therefore the insured not 
only jeopardizes to loss by death the reserve fund of 
$185.71 the sixth year, but in addition thereto $34.23 of 
the current year's premium and any ^'dividends'' he 
might receive. The difference between the net pre- 
mium and the gross premium charged of $8.66 is the 
amount the company has to use to pay managing ex- 
penses and to pay ''dividends." 

156. Illustration. 

The insured could have purchased from the same 
company a $1,000 death claim with the same insurance 
provisions for the average term premium of $15.27. 
Had he invested the difference in premiums of $35.36 
yearly at five per cent., he would have had at the end 
of the twentieth year $1,227.69 and this saving would 
not have been jeopardized to loss by death in the mean- 
time. Had death occurred the twentieth year the in- 
sured would have left an insurance estate of $1,000 
plus the savings of $1,227.69 or a total estate of 
$2,227.69, under this plan instead of $1,000 under the 
endowment policy. Any "dividends" the insured 
might hiave received on the endowment policy in ex- 
cess of those received on the term policy would not 
purchase a sufficient amount of "paid-up" insurance 
yearly to leave an equal estate to the one created by 
the term policy and the savings. 

Had the insured become financially embarrassed the 



TWENTY YEAR ENDOWMENT POLICY. 97 

fifteenth year, and it would have become necessary for 
him to have secured from the company the amount of 
his accumulated cash of $674, he would not only have 
been required to pay the company at least five per 
cent, for the use of his own money, but the amount 
he so secured would have been deducted from the 
death claim, the beneficiary only receiving $326 in case 
of death, where under the term policy, keeping his 
savings and their interest worth the same as they 
would have been kept had he paid them to the insur- 
ance company, he would have had available cash to 
the amount of $801.25 instead of $674, and had death 
occurred in the next five years the beneficiary would 
have received the full $1,000 death claim. 

157. Illustration Where Policies Are Written on De- 
ferred Dividend Plan. 

Where the endowment policies are issued on the 
deferred dividend plan, the payment of the dividends 
being deferred to the end of the endowment period, 
it is not always advisable to surrender the policy for 
its cash value more especially where it has been in 
force for many years. Should the policy be surren- 
dered the deferred dividend accumulations would be 
lost to the insured and the loss of the deferred divi- 
dends upon surrender after the tenth year would be 
greater than the loss sustained by paying the balance 
of the premiums. 

Instead of paying any further premiums upon the 
policy the insured should borrow from the company 
each year the amount of the premium. The premium 
so retained would be equivalent to receiving the ac- 
crued dividends by instalments and the retaining of 
the premiums would not reduce the amount of the divi- 
dends to be paid in the future nor in the death claim 
in case of death, as the policy provides that any ac- 
crued dividends will be paid to the beneficiary in addi- 
tion to the death claim and the dividends will be paid 



98 FALLACIES OP LIFE INSURANCE. 

in addition to the cash value of the policy should it be 
surrendered, and all premiums so retained would not 
be lost to the insured's estate should death occur. The 
interest worth of the premiums so retained would ojff- 
set the interest charged by the company. 

158. Where Deferred Dividends Are Paid Quinquen- 
nially. 

Where the deferred dividends are payable on the 
fifth, tenth and fifteenth anniversary of the policy, it 
would not be advisable to surrender the policy for its 
cash value one or two years prior to the dividend pay- 
ing period, but the premiums should be paid until they 
are apportioned and returned to the insured and then 
it can be surrendered without the loss of the deferred 
dividends. 

159. Accrued Dividends. 

Where the endowment policy written on the de- 
ferred dividend plan is exchanged any year for term 
insurance, as provided in the policy, the accrued divi- 
dends to date of such exchange will not be lost, as 
any accrued dividends wdll be paid to the insured at 
the time the original endowment would have been pay- 
able or at the time the term insurance expires or at 
the time the death claim would be payable. 

160. Premium Payments Should Cease After Fifth 
Year Where Insured's Health Is Impaired. 

Should the insured meet with some accident or have 
a severe illness where death was sure to occur within 
the extended insurance period contained in the endow- 
ment policy, the insured should not pay any additional 
premiums because the payment of any additional 
premiums would not increase the amount of the orig- 
inal death claim nor extend the term insurance beyond 
the end of the endowment period and all premiums 
paid to date of demise would be lost to the estate. 



TWENTY YEAR ENDOWMENT POLICY. 99 

Any premiums so retained plus their interest worth 
together with the pure endowment payable at the time 
the original endowment would have been payable will 
exceed the guaranteed cash value of the endowment at 
the end of the twentieth year. 

161. Illustration. 

For example, suppose the insured should cease pay- 
ing premiums after the fifth year. The fifteen remain- 
ing premiums of $50.63 improved at five per cent, in- 
terest would amount to $1,147.27. The five premiums 
already paid will pay for the $1,000 death claim for 
the next fifteen years and $75 in excess should the in- 
sured live. The $1,147.27 (fifteen payments and their 
interest worth) plus the endowment of $75 equals 
$1,222.27, or $222.27 in excess of the guaranteed en- 
dowment at the end of the twentieth year. The ac- 
crued dividends for the first five years of the policy 
will be paid in addition to and at the same time the 
$75 endowment would be payable. Any '^dividends'' 
the insured might receive during, the remaining fifteen 
years would not equal the excess cash of $222.27. 

The insured must not lose sight of the fact that 
should death occur any time during the fifteen years 
he will leave an insurance estate of $1,000 and in ad- 
dition thereto all of the retained premiums and their 
interest worth to date of demise. 

Let us suppose the insured should cease paying pre- 
miums after the tenth year. The ten remaining pre- 
miums and their interest worth at five per cent, would 
amount to $668.82 at the end of the tenth year or at 
the time the original endowment would have been pay- 
able. The ten remaining premiums already paid will 
pay for the next ten years insurance and in addition 
thereto an endowment of $459; $668.82 plus the en- 
dowment of $459 would equal $1,127.82 or an excess 
cash of $127.82. The ''dividends'' the insured might 
receive for the ten remaining years would not equal 



100 FALLACIES OF LIFE INSURANCE. 

$127.82. The accrued dividends for the first ten years 
of the policy will be paid in addition to and at the 
same time the endowment of $459 wonld be payable, 
and should death occur during the last ten years, the 
insured would leave an insurance estate of $1,000, to- 
gether with the retained premiums and their interest 
worth to date of demise. The results will be in pro- 
portion to the above any year the insured may cease 
paying premiums from the fifth to the twentieth year. 

The ^'paid-up" insurance values contained in the 
above table will be paid to the beneficiary should the 
death of the insured occur during the original endow- 
ment period of twenty years and should the insured 
live to the end of the original endowment period the 
amount of the ^^ paid-up insurance'' will be paid in 
cash the same as the original endowment would be 
paid. For example, should the insured cease paying 
premiums after the tenth year and take advantage of 
the ^'paid-up insurance privilege'' should his death oc- 
cur in the next ten years, the company will pay $538 
to the beneficiary and should the insured live to the 
end of the remaining ten years the insured will re- 
ceive $538 in cash. 

162. The Insured Has the Privilege of Renewing the 
Policy. 

The insured should ever bear in mind that all life 
insurance policies are written for one year, and the 
premium charged is calculated on a basis whereby the 
company will permit the insured to renew the same 
at the same premium rate for a specified number of 
years or for the whole of life with provisions in the 
policy, setting forth the amount of money the com- 
pany will return upon its surrender any year the in- 
sured desires to surrender the same where the pre- 
miums paid were in excess of the actual cost of the 
insurance. 

The insured assumes no moral obligation at the time 



TWENTY YEAR ENDOWMENT POLICY. 101 

the policy is purchased to pay for all of the years the 
policy is written to cover, therefore the insured has 
just as much right to surrender the policy any year 
as he has to continue paying premiums. The only 
point to be taken into consideration by the insured 
where a policy is to be surrendered is, whether it is 
best or not for his financial interest. 

163. Companies Advise the Insured Not to Surrender 
Policy. 

It is a very common occurrence for the different 
insurance companies to advise their policy-holders, by 
personal letter, not to surrender their policies. That 
to surrender the policy in any manner would entail 
a heavy loss to the insured. These letters also contain 
specific instructions for the insured NOT to accept 
the advice of any person other than the company re- 
garding their life insurance policies, and that the in- 
terests of the company and the policy-holder are mu- 
tual, and that any time the insured desires any infor- 
mation regarding his life insurance policies, the com- 
pany should be the only one consulted. That the com- 
pany is always looking after the best interests of its 
policy-holders; and just as long as the policy-holders 
persist in following these instructions from the com- 
pany, just so long will heavy losses occur. 

164. Do Companies Always Deal Fairly? 

If it is true that the insurance companies never take 
advantage of their policy-holders in any Wiay, why is 
it necessary to pass stringent state laws to protect the 
interests of the policy-holders against rank abuses per- 
petrated upon them by the life insurance companies? 

165. Policy Should at All Times Meet the Needs of 
the Insured. 

The insured may be carrying a policy which would 
render him the best service at the time the policy was 
purchased, but on account of a complete change in the 



102 FALLACIES OF LIFE INSURANCE. 

insured's condition in after years the policy would be 
rendered practically worthless. Would the insured 
consider it prudent to still continue paying premiums 
on a policy if it did not serve his needs, just because 
he had paid a few years' premiums? It is to meet 
these obstacles that the policy contains conditions un- 
der which the form may be changed or surrendered, 
and no doubt that was one of the arguments set forth 
by the agent at the time the policy was purchased to 
induce the insured to purchase the same. There are 
many of the high-priced forms of ^ investment pol- 
icies" which are being changed to the lower-priced 
term insurance or surrendered for their cash on the 
plans provided in the policy. 

166. Policies May Be Exchanged Without Loss to the 
Insured. 

Should the insured desire to cease renewing this 
most objectionable form of policy at any time after 
the third year as provided in the terms of the policy 
the above illustrations for the fifth, tenth and fif- 
teenth year will show the results to be obtained where 
the surrender is made at the years specified. The fol- 
lowing detailed explanation will be given where the 
policy is surrendered the fifth year and will not only 
clearly show that this may be done without loss to 
the insured, but will result in a very satisfactory sav- 
ing for the next fifteen years, whether in good health 
or not. These explanations and illustrations will also 
apply to the results where the policy is surrendered in 
later years. 

167. Illustration. 

If in good health insured should purchase new in- 
surance equal to the actual insurance contained in the 
present death claim ($814.29) upon the whole life con- 
tinuous premium plan for the average non-participat- 
ing rate of $21.32 for age 40, the attained age of the 



TWENTY YEAR ENDOWMENT POLICY. 103 

insured, and surrender the present policy for its 
cash surrender value of $185.71, less any surrender 
fee. As some companies do not charge a surrender 
fee, this illustration will be based upon the assumption 
that the insured will be able to secure from the com- 
pany the full amount of the accumulated reserve or 
self -insurance fund. The interest worth of the cash 
value ($185.71) of $9.28 will reduce the new premium 
to $12.04. The difference between the new premium 
of $12.04 and the original premium of $50.63 will give 
a saving of $38.59 in premiums, less any possible 
*' dividends.'' Save $38.59 for the next fifteen years. 
The savings of $38.59 yearly and their interest 
worth at five per cent, will amount to $874.44 at the 
end of fifteen years. Should the insured wish to sur- 
render the new insurance at the end of the fifteen 
years, or at the end of the original endowment period, 
it will have a cash value of $215.47. This amount plus 
the cash value of the present policy of $185.71, to- 
gether with the savings of $874.44, will equal $1,275.62 
at the time the endowment of $1,000 under the present 
policy would be payable. Should the death of the in- 
sured occur at any time after the fifth year, the estate 
left to the beneficiary would be insurance $814.29 plus 
the cash value of present policy of $185.71 plus the 
savings of $38.59 and their interest worth each year 
to date of demise. Any ^^ dividends" the insured might 
receive under the present policy after the fifth year 
would not be sufficient to purchase $38.59 of ''paid- 
up insurance" each year, which would be required to 
leave an equal estate in case of death in the fifteen 
years, and any ''dividends" which might be realized 
from the present policy from the fifth to the twentieth 
year would certainly not equal the difference in the 
cash surrender value of $275.62. 

168. When New Insurance Should Be Purchased. 

Where the endowment policy is to be surrendered 
for its cash value and new insurance is to be pur- 



104 FALLACIES OF LIFE INSURANCE. 

chased to cover the actual insurance remaining in the 
policy any year in order to leave an equal estate 
should death occur, the new insurance should be pur- 
chased before the present policy is surrendered. It 
is always best to purchase even hundreds of insurance. 
Odd amounts used here for comparison only. In this 
case $800 new insurance should be purchased. 

169. Plan for Reformation Where Insured Is in Poor 
Health. 

Should the insured be in poor health and be unable 
to pass a satisfactory medical examination at the end 
of the fifth year and be unable to secure new insur- 
ance at the time the policy was to be surrendered, he 
should take advantage of the provision contained in 
the policy which provides that the same may be ex- 
changed any year after the third for a term policy for 
the full amount of the original death claim to cover as 
many years as the accumulated reserve will purchase 
at the attained age of the insured, the new term insur- 
ance to expire at the time the original endowment pol- 
icy would have expired. Should the accumulated re- 
serve or self-insurance fund be in excess of the amount 
required to carry the new term policy to the end of 
the original endowment period, the company will pay 
to the insured in cash the amount of the excess at the 
time the original endowment would have been pay- 
able. 

Where an endowment policy is exchanged for insur- 
ance on the term insurance plan, as provided in the 
policy, upon the death of the insured the amount of 
the annual premium is deducted from the death claim 
should death occur during the first, second or third 
year by some companies, but the premiums retained 
by the insured will offset any possible deduction 
made by the company. Competition is forcing this 
plan out of practice as there are few companies who 
adopt this plan. 



TWENTY YEAR ENDOWMENT POLICY. 105 

. By referring to the table of cash surrender values 
of this policy we find that the five premiums paid are 
sufficient to pay for the five years already lived and 
in addition thereto fifteen years of term insurance and 
$75 in excess, which will be returned to the insured at 
the end of the original endowment period, if he lives. 
The fifteen remaining premiums and their interest 
worth will amount to $1,147.27 at five per cent. This 
amount, together with the endowment of $75, will 
equal $1,222.27. Should death occur the sixth year 
the insured would leave an insurance estate of $1,000 
plus the premium saved of $50.63, or a total oi 
$1,050.63. Should death occur the twentieth year an 
insurance estate of $1,000 will be left plus the savings 
of $1,147.27, or a grand total of $2,147.27, as against 
$1,000 under the present plan, or an average estate of 
$1,598.95 for the fifteen years. Any '^dividends" the 
insured might receive under the endowment policy 
would not buy an average of $598.95 insurance for fif- 
teen years. 

By accepting this plan of reformation the insured 
would have $1,222.27 cash under the new plan, instead 
of $1,000 under the endowment policy, or an excess 
of $222.27. Any ''dividends" the insured might re- 
ceive in the remaining fifteen years of the endowment' 
policy would certainly not equal $222.27. By refer- 
ring to the table of cash surrender values under this 
policy, it will be found that any premiums paid the 
company after the fifth year does not increase the orig- 
inal death claim nor extend the number of years the 
policy was written to cover. 

The first five premiums pay for all of the insurance 
contained in the death claim for the twenty years, 
also the managing expenses and ''dividends" paid for 
the five years and $75 in excess if insured lives. The 
remaining fifteen premiums are paid to create the en- 
dowment fund of $1,000, the insured's share of man- 
aging expenses and any "dividends" he may receive 
for the remaining fifteen years. 



106 FALLACIES OP LIFE INSURANCE. 

170. Endowment One of Most Objectionable Forms 
of Insurance. 

'^Endowment insurance'' is one of the most objec- 
tionable forms of temporary insurance. Under an en- 
dowment contract the insured cannot receive the ben- 
efits for which he is paying. He is paying for insur- 
ance to be paid to his estate or beneficiary if he dies, 
and he is paying for an endowment or sum of money 
to be paid to himself if he lives. In order for the 
beneficiary to receive the insurance he must be dead. 
In order to receive the endowment he must be alive, 
and he CANNOT be dead and alive at the same time. 
If he is going to die there is no use paying for the 
endowment he cannot receive, and if he is going to 
live he does not need the insurance. 

Life insurance is one thing and savings or invest- 
ment is another, and the two items cannot be combined 
under the same contract without detriment to one or 
the other or both of them. Life insurance should be 
carried for protection only. There is no investment 
in life insurance if the insured lives. Insured should 
not buy life insurance for money to be paid to him- 
self at some future time, he may die and lose it. 

Any ^^ dividends" to be paid to the insured in the 
future under a life insurance policy are only IMAGI- 
NARY, but the premiums paid to purchase the same 
are NOT imaginary. 

171. Ten and Fifteen Year Endowment. 

The ten and fifteen year endowment forms are prac- 
tically the same as the twenty year form. Under the 
ten year endowment the cash value or self-insurance 
fund of $1,000 will be accumulated at the end of the 
tenth year. At age 35 the average yearly premium 
for a $1,000 death claim or endowment on a three per 
cent, reserve basis is $104.22. This amount paid 
yearly in advance for ten years will pay the insured's 
share of mortality expense, create the reserve or self- 
insurance fund of $1,000, pay the insured's share of 



TWENTY YEAR ENDOWMENT POLICY. 107 

managing expenses and pay for any ^ ^ dividends " the 
insured may receive for the ten years the policy is 
written to cover. 

Under the ten year endowment plan the self-insur- 
ance fund will equal $1,000 at the end of the tenth 
year, therefore the endowment of $1,000 is returned 
to the insured and all dealings with the company un- 
der this policy are ended. If the insured desires new 
insurance he will be required to pass a medical exami- 
nation to secure the same. 

Insured could have purchased a $1,000 death claim 
which would have paid the insured's beneficiary $1,000 
had his death occurred during the ten years the same 
as under the endowment policy, for the average non- 
participating rate of $12.35, therefore the insured paid 
$91.87 yearly for ten years to create the $1,000 endow- 
ment^ and should death occur any time during the 
ten years «ach payment made to date of demise to- 
gether with its interest worth would have been lost to 
the insured's estate. Had the insured purchased the 
$1,000 death claim for $12.35 and invested the $91.87 
yearly for ten years at five per cent., he would have 
had $1,213.60 at the time the $1,000 would have been 
payable under the endowment policy, and should 
death occur the tenth year he would have left an insur- 
ance estate of $1,000 plus the savings and their inter- 
est worth of $1,213.60, or a total of $2,213.60 instead 
of $1,000 under the endowment plan, or an average 
excess estate of $652.73 for the ten years. 

The same rules and illustrations under the twenty 
year endowment plan will apply to the ten and fifteen 
year endowment as they are all founded on the same 
mathematical basis. 

172. ^Tive Per Cent. Gold Bond/' 

As the ''five per cent, gold bond policy" is founded 
on the same basis as the endowment policies, this form 
of policy will be the next to be explained, and should 
the reader be the proud possessor of one of these 



108 FALLACIES OF LIFE INSURANCE. 

'^very valuable five per cent, gold bond policies," the 
following illustration should provide very interesting 
reading. 

The ^^five per cent, gold bond policy" is simply a 
revised issue of the different forms of the endowment 
policy. "While the endowment is a very objectionable 
form of policy, yet the '^five per cent, gold bond" 
is one step worse and may be considered the most 
objectionable form of ''investment policy" issued by 
any life insurance company, and if certain states had 
not passed laws prohibiting the issuance of this most 
objectionable form of policy it would be hard to esti- 
mate to what extent these injustices would have been 
carried by the life insurance companies. 

173. Why Not Prohibit All Adverse Policies? 

It may seem queer to the reader that the ''five per 
cent, gold bond" should be prohibited and the 
endowment form of policy, which is the parent of the 
"five per cent, gold bond," should be allowed to 
be issued or that the "five per cent, gold bond" 
scheme should be permitted to be applied to the lim- 
ited payment whole life policies, one being as adverse 
as the other. 

174. How Five Per cent. Is Paid. 

The "five per cent, gold bond" and the endowment 
form of policy are practically the same, the only dif- 
ference is that under the gold bond policy the com- 
pany guarantees a "dividend" of five per cent., while 
under the endowment the interest accumulated on the 
reserve is on a three, three and one-half or four per 
cent, basis, according to the rate adopted by the com- 
pany. It may seem queer to the reader how the insur- 
ance company operating on a three per cent, interest 
basis can guarantee to pay five per cent, on its hold- 
ings. It does NOT pay five per cent. The fact that 
it does is simply another illustration of the "high 



TWENTY YEAR ENDOWMENT POLICY. 109 

finance" schemes adopted by the life insurance com- 
panies. 

As the '^five per cent, gold bond policy" is most 
generally issued on the twenty year plan, this illustra- 
tion will be based on the twenty year basis. 

175. Illustration. 

The ^^gold bond" of $1,000 paying a ^^ dividend" of 
five per cent, for twenty years is delivered to the in- 
sured at the end of twenty years should he be living, 
or delivered to the beneficiary should the death of the 
insured occur in the meantime. In order for the com- 
pany to pay a ^^ dividend" of five per cent, on a 
''$1,000 gold bond," the insured is required to pur- 
chase $1,300 of insurance on the endowment plan. 

Upon the death of the insured the $1,300 insurance 
is held or retained by the company and a $1,000 bond 
is issued to the beneficiary bearing five per cent, in- 
terest for twenty yeary. The company can pay three 
per cent, on the $1,000 held as payment for the bond, 
and the remaining $300 of the death claim and its 
interest increments are held by the company to pay 
the extra two per cent, for the twenty years. Is the 
beneficiary really receiving a legitmate ''five per cent, 
dividend" on the $1,000 gold bond"? Most assuredly 
not. The '^five per cent, gold bond policy" is simply 
a plan adopted by the company of paying to the ben- 
eficiary the $1,300 death claim purchased by the in- 
sured on the endowment plan. Instead of paying the 
$1,300 death claim in one sum, the beneficiary receives 
$50 a year for twenty years, which consumes $300 of 
the death claim and the interest on $1,000 at three per 
cent., and at that time the $1,000 in cash is delivered 
to the beneficiary, providing the beneficiary is still 
living. 

Should the insured live and pay premiums for 
twenty years on the "five per cent, gold bond policy" 
which are thirty per cent, more than would be re- 
quired on a $1,000 endowment policy for the twenty 



110 FALLACIES OF LIFE INSURANCE. 

years, instead of the company delivering to the in* 
sured $1,300 in cash, all of which he has paid for, the 
company retains the $1,300, gives the insured a piece 
of paper upon which has been printed ''FIVE PER 
CENT. GOLD BOND,'' pays the insured $50 a year 
for twenty years for the use of the $1,000 which it 
received in payment for the beautifully engraved piece 
of paper. The $300 and its interest increments, to- 
gether with the three per cent, interest on the $1,000, 
being the equivalent of $50 payable yearly for twenty 
years. 

Is it any wonder that the issuance of the ''five per 
cent, gold bond'' should he prohibited by law? 
Should not the issuance of the endowment and the 
twenty payment whole life gold bond policy be pro- 
hibited also? They probably will be some time in the 
future, but not until millions of dollars will have been 
lost to the policy-holders and the beneficiaries there- 
under. 

176. Vast Sums Lost by Policy-Holders. 

There has been millions of dollars paid to the life 
insurance companies by purchasers of the ''five per 
cent, gold bond policies," and there are thousands of 
these policies being carried today, the holders of the 
same being led to believe that "they had something 
exceptionally good and that they should not be sur- 
rendered under any consideration, that it would be 
impossible to secure from the company another 'gold 
bond policy' which would afford such exceptional 
dividend returns." The ov^ner of the "five per cent. 
gold bond" not knowing that the reason the same 
could not be purchased was because the issuance of the 
"gold bond policy" is prohibited by law. 

177. Illustration. 

The following illustration should clearly show to the 
insured what he really secured when he purchased 
the much coveted "five per cent, gold bond." 

Let us suppose that "A" at age 35 purchased a 



TWENTY YEAR ENDOWMENT POLICY. Ill 

''twenty year five per cent, gold bond" for $1,000 from 
an insurance company operating on the three per cent, 
basis for the average annual premium of $63.50. The 
''five per cent, gold bond" policy is issued on the 
teinporary twenty year term plan. "A" could pur- 
chase a $1,000 death claim at age 35 on the temporary 
term plan for the average premium of $14.25, there- 
fore $49.25 of each premium was paid to create the 
$1,000 for the bond and the extra money required to 
pay the five per cent, interest the company has guar- 
anteed to pay, which is two per cent, in excess of the 
amount it would be permitted to guarantee under any 
other plan. As the life insurance company has placed 
the value of money at five per cent, by guaranteeing 
to pay this amount upon its bond, the money value of 
five per cent, will be used in this illustration. If 
money was only worth three or four per cent, in the 
markets, it is fair to presume that the insurance com- 
pany would not offer to pay five per cent, in order 
to compete with legitimate investments. The fact that 
the life insurance company "never fails" would be 
ample inducement to overcome the competition offered 
by our banks and trust companies. 

The difference in premiums on the two contracts of 
$49.25 yearly improved at five per cent, in twenty 
years would amount to $1,709.96. Of course, the term 
policy for $1,000 which "A" purchased for $14.25 
yearly would have no surrender value at the end of the 
twenty years, so the only available cash he would have 
at the end of twenty years would be the savings and 
their interest worth of $1,709.96. Had he invested the 
savings in premiums in legitimate bonds paying five 
per cent., the $1,709.96 worth of bonds would yield 
a yearly income of $85.49 instead of $50 under the 
"five per cent, gold bond," so the insured might con- 
sider that he would be paying $35.49 yearly in order 
to secure a safe "investment"; and the insured would 
be receiving the $85.49 for life instead of $50 for the 
limited number of twenty years. 



112 FALLACIES OF LIFE INSURANCE. 

178. Reason for Purchasing 'Tive Per Cent. Gold 
Bond." 

Perhaps the only reason that ^^A" could be induced 
to purchase a ^'$1,000 five per cent, gold bond" would 
be to save the beneficiary the trouble of having to go 
to a bank and purchase legitimate five per cent, bonds 
with the death claim, so in order to save the bene- 
ficiary the trouble of having to invest the $1,000 d^ath 
claim under the new and sane plan, he would be re- 
quired to deposit the insurance policy with some re- 
liable bank or trust company with instructions to pur- 
chase legitimate bonds, paying five per cent, with the 
proceeds of the insurance policy, which would be paid 
to the bank or trust company by the insurance com- 
pany upon the death of the insured and deliver the 
bonds so purchased to the beneficiary. 

The $1,000 in bonds purchased with the death claim 
received from the insurance company and the $1,709.96 
of bonds purchased by the savings and their interest 
worth would give a total estate of $2,709.96, paying 
a yearly dividend of $135,49 instead of a $1,000 estate 
paying five per cent., under the ^'gold brick plan," 
should ^^A's" death occur the twentieth year. Should 
his death occur the first year he would leave a $1,000 
estate in legitimate bonds purchased by the bank or 
trust company paying five per cent, and the savings 
in premiums of $49.25, or a tot|al of $1,049.25 instead 
of $1,000 under the ^'gold bond plan," or an average 
excess estate of $879.60 for the whole twenty years. 

The five per cent, gold bond schemes are now being 
applied to the twenty payment life policies as a means 
of paying the death claim. The five per cent, gold 
bond system is one of the greatest injustices ever per- 
petrated upon the insuring public and will be fully 
explained under the ^'twenty payment life policy." 

The permanent whole life form of insurance will be 
next explained. 



ORDINARY LIFE POLICY. 113 



CHAPTER VIII 

WHOLE LIFE CONTINUOUS PREMIUM 

POLICY 

Policy No. 4. Premium $27.21. 

Age 35. Participating. Death Claim $1,000. 

American Table of Mortality and Three Per Cent. 

Interest. 

Blank Life Insurance Company, in consideration of 
the application for this policy, a copy of which is 
hereto attached and made a part hereof, and of the 
payment in advance of twenty-seven and 21/100 dol- 
lars, being the premium to provide term insurance for 
one year from January 2, 1913, to January 2, 1914, 
and in further consideration of a like payment on said 
last mentioned date, and thereafter on the second day 
of January in each and every year during the contin- 
uance of this policy, until the death of the insured, 
promises to pay ^at the home office of the company, 
upon receipt of due proof of the death of John Doe, 
herein called the insured, one thousand dollars, less 
any indebtedness hereon to the company and any un- 
paid portion of the premium for the then current pol- 
icy year, to Mary Doe (his wife), beneficiary, with 
right of revocation. 

The contents of the succeeding pages of this policy 
and the benefits, conditions and values set forth 
therein are made a part hereof. 

Signed Signed 



114 FALLACIES OP LIFE INSURANCE. 

Table of Loan and Surrender Values. 





Cash or 


Paid-up 


Extended 


Insurance 


Tears. 


Loan Value 


Policy 


(Years) 


(Days) 


3 


$ 39.76 


$ 90 


4 


183 


4 


53.77 


119 


6 


7 


5 


68.16 


148 


7 


182 


6 


82.94 


177 


8 


326 


7 


98.11 


206 


10 


57 


8 


113.68 


234 


11 


100 


9 


129.65 


262 


12 


87 


10 


146.01 


289 


13 


21 


11 


162.76 


316 


13 


269 


12 


179.87 


343 


14 


108 


13 


197.35 


369 


14 


271 


14 


215.16 


395 


15 


33 


15 


233.28 


420 


15 


128 


16 


251.68 


445 


15 


196 


17 


270.34 


469 


15 


239 


18 


289.22 


492 


15 


259 


19 


308.32 


515 


15 


261 


20 


327.58 


537 


15 


245 



Note: 

The full reserve or cash surrender values are shown 
in the above table. Where the cash surrender values 
given in any policy issued on the three per cent, basis 
are less than the values here shown the difference in 
the cash surrender values represents the fee charged 
by the company for surrender. The full reserve values 
for the different ages and also for the years the policy 
has been in force will be found in Article 332. 

A full explanation of the conditions, privileges and 
restrictions will be found in Chapter XIV. 

179. Analysis. 

Policy number 4 for $1,000 as shown above is writ- 
ten to cover sixty-one years of insurance (the insur- 
ance years from age 35 to age 96, which is the pos- 



ORDINARY LIFE POLICY. 115 

sible life-time of the insured) to be paid for in sixty- 
one years. The sixty-one premiums pay for sixty-one 
ye,ars of insurance and $1,000, together with any so- 
called ^^ dividends" in excess if insured lives, as the 
policy matures as an endowment for its face value at 
age 96. The average necessary rate at a fixed yearly 
premium at age 35 for a $1,000 Permanent Standard 
Death Claim is $22.20 where there has been no extra 
premium charged with which to pay ^ ^ dividends. " 
Where the premium of $27.21 is charged the insured 
is required to pay $5.01 excess each year in order to 
be able to receive ^'dividends" upon his policy, there- 
fore $5.01 of each premium is an overcharge and all 
payments made to date of demise will be lost to the 
estate if the insured dies within the first twenty years 
where the policy is written on the ^'twenty year de- 
ferred dividend plan." 

If the insured dies within the first twenty years the 
policy provides to pay $1,000 death claim exclusive of 
'^dividends." Death after the twentieth year provides 
for the payment of $1,000 death claim exclusive of 
^'dividends" providing the premiums are paid to date 
of demise. 

The actual insurance at the end of the twentieth 
year will be $672.42 and with the $327.58 guaranteed 
cash value or self -insurance fund will equal the $1,000 
death claim. 

By the payment of the overcharge of the actual 
yearly cost contained in the premium to create the 
cash value or self-insurance fund required, the in- 
sured reduces the actual insurance contained in this 
policy to $672.42 at the end of the twentieth year. 
The premiums paid and their interest worth are suffi- 
cient to carry the insurance and create a self-insur- 
ance fund of $1,000 at age 96, as all whole life policies 
mature as an endowment equal to the original death 
claim at this time, including any ''dividends." The 



116 FALLACIES OP LIFE INSURANCE. 

overcharge in premiums enables the company to give 
increased surrender values. 

As the cash value or self- insurance fund IN- 
CREASES the actual insurance DECREASES and the 
cost to the insured INCREASES. The CASH VALUE 
is NOT insurance. 

If insured is alive and all premiums been paid in 
cash to the end of the twentieth year and there has 
been no loan secured thereon, the policy guarantees 
$327.58 in cash with ^ ^ dividends, " if any, for surren- 
der. Or in lieu of the $327.58 cash to become '^paid- 
up" for $537 exclusive of any ^ ^ dividends ' ' and pay- 
able after death. Or to continue the $1,000 death claim 
as a term policy for the next fifteen years and 245 
days without further payment of premium, and if the 
insured is then alive to pay nothing as the term policy 
will expire at that time. 

180. Permanent Insurance. 

Permanent insurance is written to cover all of the 
years the insured may possibly live. As all persons do 
not live to the same age, it is necessary for the com- 
pany to establish an age limit upon which to base the 
premiums to be charged. 

The American Table of Mortality places this limit 
at age 96, and where a policy is written to cover all 
of the possible years the insured may live, it is called 
a ^* whole life policy." 

The premiums upon a whole life policy may be pay- 
able in one single payment or in a specified number 
of years as ten, fifteen, twenty or twenty-five, or they 
may be payable each year as long as the insured lives 
until age 96, at which time the cash value or self-insur- 
ance fund equals $1,000 for each $1,000 of death claim 
and is then payable as an endowment. The whole life 
continuous premium policy is also called ^^ ordinary 
life" or ^^ straight life." 



ORDINARY LIFE POLICY. 117 

181. Premium Basis. 

Where the insured purchases a policy under the 
terms of which the company must some time pay to 
the beneficiary the amount of the death claim, provid- 
ing the policy is in full force, the premiums are based 
on the number of years from the age of the insured at 
the time the policy is purchased to age 96. 

182. Illustration. 

For example, where the insured at age 21 purchases 
a whole life policy, the premiums are calculated on a 
basis of seventy-five insurance years and we say '^the 
policy is written to cover seventy-five years." Where 
the insured purchases a policy at age 35 it is written 
to cover sixty-one years of insurance and the pre- 
miums are calculated accordingly; and where the pol- 
icy is purchased at age 50, it is written to cover forty- 
six years, etc. At whatever year the policy is pur- 
chased the insured must pay to the company sufficient 
money during the insurance years, improved at the 
rate of interest the company has adopted, to pay his 
share of mortality and managing expenses, and in addi- 
tion thereto enough money, plus its interest worth, to 
create the self-insurance fund which will equal the 
face of the policy should the insured live to age 96, 
and where the insured is to receive ^^ dividends" upon 
his policy it will be necessary to pay additional money 
to be returned as ^^ dividends." 

183. Level Premium Basis. 

As the mortality expense of the company increases 
each year as the policy-holders grow older, in order 
that the insured may pay an equal amount each year, 
it will be necessary to pay to the company during the 
early years of the policy more money than will be re- 
quired to meet the actual mortality expense during the 
early years, and this excess money so paid must be re- 
tained by the company to create a self-insurance fund 



118 FALLACIES OF LIFE INSURANCE. 

sufficient to offset the increiasing mortality expense for 
later years. 

184. Net Premiums Required Pius ''Dividend'' Con- 
tributions. 

Where the policy is purchased at age 21 on the three 
per cent, basis, the company calculates that it must 
receive a net premium of $14.72 yearly from the in- 
sured to pay the current mortality expense and cre- 
ate the self-insurance fund of $1,000 for each $1,000 
death claim for the seventy-five years the policy is 
written to cover and tlie company must also have a 
small contribution each year from the insured to pay 
managing expenses, and where the policy-holder is to 
receive ''dividends" upon his policy he must also con- 
tribute to the company additional money to be re- 
turned to him at some future time as "dividends." 
The amount contributed on an average at age 21 to 
meet these two items is $4.38, making a gross premium 
on the average of about $19.10. 

Where the policy is purchased at age 41 the policy 
will be written to cover fifty-five insurance years and 
as the insured would only have fifty-five yearly pay- 
ments to make instead of seventy-five, he would be 
required to pay in more money each year. A yearly 
net premium of $25.62 is required for age 41 for each 
$1,000 of death claim on the three per cent, basis., to 
pay the mortality expense and create the $1,000 self- 
insurance fund at age 96, and the insured at age 41 
must also contribute his share of managing expenses 
and for "dividends," if he is to receive them, and as 
he is required to pay more money to the company 
yearly than the policy-holder at age 21, he will ex- 
pect more "dividends"; so the company at once pro- 
ceeds to collect the extra amount from him. The aver- 
age expense and "dividend" loading for age 41 is 
$7.38, making an average gross premium of $33. 

Where the policy is purchased at age 61 the policy 



ORDINARY LIFE POLICY. 119 

will only be written to cover thirty-five years, and 
the insured will only be required to make thirty-five 
payments of $78.80 on the average, to pay mortality, 
managing land ^^ dividend" expense and create the 
$1,000 self-insurance fund at age 96. It will be no- 
ticed that the loading for ^^ dividends" is very large 
for age 61, so the insured may expect large ^^divi- 
dends." 

185. Dividend Element of Premium. 

The dividend element of the premium is a very im- 
portant factor to be taken into consideration at the 
time the policy is purchased in calculating the future 
cost of the insurance. 

The non-participating companies eliminate the ex- 
tra charge for ^^ dividends" or participation from the 
premium, and all the benefits the insured is to receive 
are guaranteed amounts. Any amount the insured is 
to receive as ^^ dividends" upon his life insurance pol- 
icy are only ^^estimjated" amounts. 

If the refund of the overcharge made in the pre- 
mium for ^^ dividends" or participation equals the 
amount charged, together with its interest worth, 
thereby reducing the cost of the participating insur- 
ance below that of the non-participating, the partici- 
pating, insurance should be purchased by all means. 
The amounts to be returned ^as ^'dividends" are too 
often greatly over-estimated by the agents of the par- 
ticipating companies and the prospective purchaser 
should never accept as authentic any typewritten or 
verbal estimates of the ^^ dividends" to be paid by the 
company. The printed statements of the ^'dividends" 
actually paid, furnished and sworn to by the officers 
of the company, should only be used to estimate any 
^^ dividends" to be paid upon the policy in the future. 

The ^^ dividends" paid by the participating com- 
panies are generally increasing amounts and in order 
that they may be so paid, the full amount of the over- 



120 FALLACIES OF LIFE INSURANCE. 

charge made in the premium for ^ ^ dividends " is not 
returned in the early years of the policy. 

186. Dividend Illustration. 

For example, let us suppose that ''A" at age 35 
purchases two $1,000 death claims. He purchases pol- 
icy number one (1) on the whole life continuous pre- 
mium plan from a non-participating company on a 
three and one-half per cent, biasis (all the leading non- 
participating companies are operating on the three and 
one-half per cent, basis) for the average annual pre- 
mium of $22.20, and he purchases policy number two 
(2) on the same plan from a participating company 
on the three and one-half or three per cent, basis for 
the average premium of $27.21. The difference in pre- 
mium of $5.01 represents the amount charged for 
^^ dividends" or participation. 

As some companies operating on a three and one- 
half per cent, basis charge more than a company oper- 
ating on the three per cent, basis for a $1,000 death 
claim issued on the same form at the same age, the 
average rate here quoted is the average premium 
charged by the companies operating on both the three 
and three and one-half per cent, basis. Practically all 
of the non-participating companies are operating on 
the three and one-half per cent, basis, and the extra 
charge made for managing expenses is very small and 
generally uniform, while charge made for expenses 
and ^'dividends" by the participating companies vary 
as much as $1.65 at age 21, $2.50 at age 35, and $5.90 
at age 55 on the whole life twenty payment policies at 
the different ages, and it will also be noticed that the 
companies charging the higher premiums generally 
pay the largest '^dividends." 

"Where the ^^ dividends" are payable annually and 

the first ^* dividend" is only payable at the end of the 

second year or at the time the third premium is paid, 

the company retains the $5.01 overcharge made for the 



ORDINARY LIFE POLICY. 121 

two preceding years or $10.02, together with the in- 
terest worth and the first ''dividend" paid is gener- 
ally about $3 and increasing a small amount each year 
for about fifteen years, at which time the ''dividends" 
will equal the overcharge of $5.01. Therefore the 
company held in reserve the $10.02 and the difference 
between the "dividends" actually paid and the charge 
made for them and their interest worth for fifteen 
years, with which to pay "dividends" for the follow- 
ing years in excess of the amount charged for "divi- 
dends," Should the company return to the pol- 
icy-holder all of the overcharge made for "dividends" 
and the interest worth, it CANNOT be considered a 
"dividend." 

Where policy number two (2) is written on the "de- 
ferred dividend plan" should death occur the fifteenth 
year policy number one (1) would only have cost "A" 
$503.05, while policy number two (2) would cost 
$616.57 or a difference of $113.52. Should death occur 
the twentieth year policy number one (1) would have 
cost $770.78, while police number two (2) would have 
cost $944.73, or a difference of $173.95. 

"Dividends" should always be withdrawn annually 
in cash and never left Avith the company to be re- 
turned after ten, fifteen or twenty years, or left with 
the company to purchase "paid-up" additions as any 
"paid-up" additions are based on the single premium 
basis and single premium insurance is the most ex- 
pensive form of permanent life insurance. 

187. Cost of Insurance to Insured. 

Where permanent insurance is purchased on the 
whole life continuous premium plan, the actual insur- 
ance remaining in each $1,000 death claim each year 
until age 96 is greater th,an in any other form of policy 
written on the permanent insurance plan and the ac- 
tual insurance is purchased at th;^ smallest cost to tlie 
insured. 



122 FALLACIES OF LIFE INSURANCE. 

The lower the annual premiums, made lower by ex- 
tending the premium paying period over a greater 
number of years, the more of the insurance element of 
the death claim will, of necessity, be assumed by the 
other policy-holders and such lowering of annual prem- 
ium does NOT reduce the death claim, but does re- 
duce the cash value or self-insurance fund of the pol- 
icy, which the insured may have the privilege of with- 
drawing in after years providing he lives. The pay- 
ment of premiums greatly in excess of the actual cost 
of the insurance each year, thereby destroying to a 
great extent the insurance element of the death claim, 
is very detrimental to the best interests of the policy- 
holder. 

188. Ordinary Life vs. Limited Payment Life. 

The public is educated to believe by the insurance 
companies that where the whole life form of insurance 
is purchased on the limited payment plan, the insur- 
ance can be purchased at a smaller cost to the insured 
on account of the cessation of premium payments after 
ten, fifteen or twenty years. 

In order to illustrate the fallacy of this claim let 
us suppose that '^A'' purchased two $1,000 death 
claims at age 21 from a company operating on a three 
per cent basis. The net premiums will be used as a 
basis for this illustration to avoid any argument re- 
garding the ^^ dividend'' element. The insured will be 
required to pay a small amount in addition to the net 
premiums quoted here for man^aging expenses and also 
an additional amount to pay ''dividends," if he is to 
receive ''dividends" upon his policy. 

The net premium on "A's" $1,000 death claim pur- 
chased on the whole life continuous premium plan is 
$14.72. The net premium required for the twenty- 
payment life here used in comparison is $23.48, the dif- 
ference in these two net premiums being $8.76. There- 
fore "A" pays $8.76 yearly in excess of the premium 



ORDINARY LIFE POLICY. 123 

required for permanent insurance for his age, in order 
to secure a '^paid-up" policy at the end of twenty 
years. 

The qash value or self-insurance fund at the end 
of the twentieth year on the whole life continuous 
premium policy is $199.17, the actual insurance being 
reduced to $800.83. The cash value or self-insurance 
fund on the twenty payment life policy at the end 
of the twentieth year is $468, the actual insurance 
remaining in the twenty paym_ent policy at the end of 
the twentieth year being $532, or $268.83 less than in 
the whole life policy. Therefore by the payment of 
the excess premium of $8.76 ''A" has paid off $268.83 
of his own dciath claim in excess of the whole life pol- 
icy. The cost thereafter to ''A" for the $532 actual 
insurance in the $1,000 death claim on the twenty-pay- 
ment policy will be the interest worth of $468 at five 
per cent of $23.40. The actual cost of the whole life 
$1,000 death claim will be the interest v/orth of the 
cash value or self -insurance fund ($199.17) of $9.95, 
plus the net premium of $14.72, or a total of $24.67. 
Therefore he is paying $23.40 for $532 actual insur- 
ance on the twenty-payment policy, while he is only 
paying $24.67 for $800.83 actual insurance under the 
wliole life policy. 

Should ^^A" live to age 96, the actual cost (cash 
and its interest worth) of the twenty-payment life 
policy will exceed the actual cost of the whole life 
policy (all premiums paid plus their interest worth) 
$231.92. Were these two policies purchased at age 25 
the actual cost would be practically the same at age 
96. Were the two policies purchased at age 30, the 
actual cost would be practically the same at age 80. 
Were the policies purchased at age 55, the actual cost 
would be practically the same at age 79. 

At the end of twenty years, or when '^A'' had at- 
tained the age of 41, his twenty-payment life policy 
would become ^'paid-up," i. e., he would not be re- 



124 FALLACIES OP LIFE INSURANCE. 

quired to pay any more premiums, while under the 
whole life policy he would be required to pay the an- 
nual, net premium of $14.72. At this time the actual 
cost (premiums paid and their interest worth) of his 
twenty-payment policy would be $815.22, while the 
whole life policy would only have cost him $511.07. 

Let us suppose that '^A" lived to age 55 and had 
kept the difference in premiums of $8.76 plus the inter- 
est worth the same as it would have been kept had 
he paid it to the insurance company, and at that 
time he wished to surrender both policies. The cash 
value of his whole life policy at his attained age, 55, 
would be $412.81, which together with the savings of 
$8.76 yearly and their interest worth, which is $602.19, 
would give a total of $1,015.00. Therefore he would 
have a cash estate of $1,015.00 under the whole life 
plan as compared with a $1,000 insurance estate under 
the twenty-payment plan and should he wish to sur- 
render the twenty-payment policy it will have a cash 
value of $609.92. 

Should ^^A" desire to secure a loan the tenth year 
the whole life policy would have a loan value of 
$84.91, which together with the savings in premiums 
of $8.76 and their interest worth had he kept them, 
amounting to $115.71, would give him available cash 
to the amount of $200.62, while the loan value of his 
twenty-payment policy the tenth year would only be 
$193.38. 

Should ^^A" secure from the company as a loan the 
full loan values of the policies the tenth year, the 
amount of the loan would be deducted from the $1,000 
death claim should death occur before the loan is re- 
paid to the company. Under the whole life policy 
the death claim would be $915.09, while under the 
twenty-payment policy the death claim would only be 
$806.62. 

Under a $1,000 death claim these values and differ- 
ences seem very small, but when a $10,000 or $25,000 



ORDINARY LIFE POLICY. 125 

or a larger policy is taken into consideration the re- 
sults are very different. 

189. Ordinary Life Policy Can Be Exchanged. 

The insured should ever remember that a policy pur- 
chased on the whole life continuous premium plan can 
be exchanged any year for any form of a limited pay- 
ment policy desired and this may be done without a 
medical re-examination. The insured would only be 
required to pay to the company in addition to the high 
premium required for the limited payment policy the 
difference between the reserve already accumulated on 
the whole life policy, at his attained age, and the re- 
serve required on the form of policy selected. 

Any form of a limited payment policy becomes a 
single premium policy at the end of the premium pay- 
ing period. "Where a whole life policy is purchased 
should the insured desire to cease paying premiums 
any year, he will only be required to pay the com- 
pany the difference between the reserve already ac- 
cumulated and the single premium for his attained 
age, and he will secure a ^'paid-up" policy. 

190. Illustration. 

For example, let us suppose that ^'A'' was 35 years 
old and purchased a $1,000 death claim on the whole 
life continuous premium plan from a participating 
company on a three per cent basis for the average 
premium of $27.21 and after five years or at age 40 
desired to cease paying premiums, i. e., purchase a 
'* paid-up policy.'' He would only be required to pay 
the company the difference between the reserve al- 
ready accumulated ($68.16) and the net single prem- 
ium of $459.42 for the attained age of 40, which is 
$391.26, and he would be required to pay no further 
premiums and the company would pay to the bene- 
ficiary $1,000 upon the death of the insured. $391.26 
might seem a very small amount to be paid to secure 



126 FALLACIES OP LIFE INSURANCE. 

a ^'paid-up policy" of $1,000, whereby the insured 
would be required to pay no more premiums, but 
$391.26 is the commuted worth of all the premiums 
to be paid to age 96 and by the payment of $391.26, 
^'A" would be paying for his insurance 55 years in 
advance and should he die the first year that would 
seem like a pretty heavy premium to pay for a $1,000 
death claim. Should he die the fifth year it would still 
be a pretty heavy premium to pay. His expectancy 
is only 28 years and this would still be a pretty 
heavy premium to pay for a $1,000 death claim for 28 
years: 

If ^^A" would surrender the whole life policy for 
its cash value of $68.16 with the $391.26 required 
for a ^^ paid-up policy" would give him $459.42 in 
cash. If he would buy bonds with this money pay- 
ing five per cent interest, instead of giving it to the 
insurance company, and buy $540.58 new insurance 
(the amount required to leave an equal estate of $1,000 
in case of death) for the non-participating rate of 
$14.15 for age 40, the interest on the bonds would 
pay the new premium and leave an income of $8.82 
for life. Should '^A" purchase the $540.58 new in- 
surance in the participating company and the ^^divi- 
dends" he would receive would be sufficient to re- 
duce the cost of the new insurance to less than that 
charged by the non-participating company, the income 
for life would be more than the $8.82. 

Or let us suppose that he wanted to change it to 
a twenty-payment policy, thereby being required to 
pay fifteen additional premiums. The difference be- 
tween the reserve already accumulated on the whole 
life policy the fifteenth year and the reserve required 
for the twenty-payment policy is $49.36 and the aver- 
age participating rate for age 40 is $41.32, therefore 
if the insured would pay to the company the sum of 
these two amounts $90.68 and the average premium 
of $41.32 for the next 14 years, less any possible ^'divi- 



ORDINARY LIFE POLICY. 127 

dends," at that time he would have a $1,000 death 
claim ''paid-up." 

Should ''A'' carry the whole life policy for twenty 
years and wish to secure a ''paid-up policy" the 
same as he would have had had he purchased the 
twenty-payment policy instead of the whole life he 
could secure a "paid-up policy" by paying to the com- 
pany the difference in the reserve of $282.34 and he 
would not be jeopardizing the $282.34 to loss by death 
in the meantime. At age 35, the averiage rate for the 
twenty-payment policy is $37.02. The difference in 
the premiums of $9.81 is paid to the company to create 
the extra reserve required on the twenty-payment 
policy in excess of the reserve required for the whole 
life policy. Had "A" kept the difference in the prem- 
iums of $9.81 yearly and invested the same at five per 
cent, he would have had $340.60 at the end of twenty 
years and he could have paid the company the differ- 
ence in the reserve of $282.34 and had $58.26 left. 

191. "Paid-up Policy" Not Paid Up. 

One of the principal sources of the losses sustained 
by a great number of policy-holders is caused through 
a desire to have their life insurance policies "paid- 
up," and if the policy-holders could be made to realize 
that it is impossible to get their insurance "paid-up" 
the denifand for these forms of policies would cease. 

As long as there is any insurance left in a death 
claim the company has a liability or risk to sustain 
and this must be paid for by the policy-holders in 
some way. 

A full explanation of the different forms of limited 
payment whole life policies will be found in the fol- 
lowing pages. The most objectionable form of perma- 
nent life insurance is to be found in the "single 
premium" plan and this will be the first to be ex- 
plained. 



128 FALLACIES OF LIFE INSURANCE. 

CHAPTER IX 

SINGLE PREMIUM WHOLE LIFE POLICY 

Policy No. 5. Premium $478.16. 

Age 35. Participating. Death Claim $1,000. 

American Table of Mortality and Three Per Cent 

Interest. 

Under this form of policy the company agrees to 
pay $1,000 upon the death of the insured. The policy 
form is practically the same as the whole life con- 
tinuous premium form, the only difference being in 
the manner in which the insured is required to pay 
the premiums thereon. 

For conditions, privileges and restrictions see 
chapter XIV. 

192. Analysis. 

This policy is written to cover 61 years of insurance 
(the insurance years from age 35 to age 96, which 
is the possible life-time of the insured) to be paid 
for in one payment. The one premium pays for 61 
years of insurance and $1,000 together with any so- 
called ^^ dividends" in excess, if insured lives, as the 
policy matures jas an endowment for its face value at 
age 96. The average necessary rate at a fixed yearly 
premium at age 35 for $1,000 Permanent Standard 
Death Claim is $22.20, therefore $455.96 of this prem- 
ium is an overcharge and will be lost to the estate 
if the insured dies within the first year. 

The interest worth of $478.16 ^at five per cent is in 
excess of the premium required for a $1,000 death 
claim issued on the non-participating whole life con- 



SINGLE PREMIUM POLICY. 129 

tinuous premium plan, therefore the entire premium 
of $478.16 may be considered a total loss to the estate 
should death occur any time previous to age 96 and 
as the annual premium of $22.20 required on the whole 
life continuous premium policy is sufficient to carry 
the $1,000 death claim to age 96 and mature the same 
as an endowment for $1,000, at that time the whole 
premium of $478.16 is a total loss to the estate, except 
that part returned as so-called ''dividends." 

By the payment of the $478.16 the insured reduces 
the actual insurance contained in this policy to $580.12. 
The premium paid and its interest worth is sufficient 
to carry the insurance to age 96, including any ''divi- 
dends" and mature the endowment of $1,000. The 
cash surrender value at the end of the first year is 
$427.36, and will increase each year to $1,000 at age 
96. 

193. Single Premium Insurance. 

Under this form of policy the company agrees to 
pay $1,000 to the beneficiary should death occur at 
any time within the 61 ycjars, the same as under the 
whole life continuous premium policy. The actual in- 
surance remaining in the death claim each year, for 
the 61 years, must be paid for the same as under the 
whole life continuous premium policy. 

Under the whole life continuous premium policy the 
insured is only required to pay premiums for the years 
he lives, one at a time, or until such time as he may 
desire to surrender the policy for its cash value, the 
yearly premium being sufficient to pay the mortality 
expense, his portion of the managing expenses and to 
create the reserve or self-insurance fund required and 
for "dividends" if he is to receive them. Under the 
single premium plan the insured is required to pay a 
premium of $478.16 at the time the policy is issued, 
which is sufficient to create a self-insurance fund of 
$419.88, which will reduce the actual insurance con- 



130 FALLACIES OP LIFE INSURANCE. 

tained in the death claim to $580.12, the expense load- 
ing on the premium of $58.28, and the interest on 
the self-insuriance fund being sufficient to pay the mor- 
tality cost of the actual insurance remaining in the 
policy and to create a self -insurance fund or cash value 
of $1,000 at age 96, and in addition thereto the in- 
sured's share of managing expenses and for ''divi- 
dends" for the 61 years. 

The net single premium of $419.88 required at age 
35 is the equivalent of $21.08, the net annual prem- 
ium required for the whole life continuous premium 
policy for the 61 years. Therefore when the insured 
purchases a whole life policy on the single premium 
plan he pays the equivalent of all the money required 
for a $1,000 death claim to age 96, i. e., he pays all 
of the mortality and managing expenses and a $1,000 
endowment due at age 96, and all the "dividends'' 
he is to receive in advance to age 96, without stopping 
to consider what his chances are for living to receive 
the $1,000 endowment or the "dividends" or whether 
he will live and be required to pay his share of the 
mortality and managing expenses. 

194. Another Plan for Single Premium Insurance. 

If the insured had plenty of money and did not care 
to be bothered with paying premiums every year for 
ten, fifteen or twenty years, or the whole of life, in- 
stead of paying to the insurance company the average 
single premium of $478.16, if he would go to some good 
reliable bank or trust company and invest the same 
in first class bonds paying at least five per cent and 
then purchase a $1,000 death claim from some non- 
participating life insurance company for the average 
premium of $22.20 required for age 35, and give the 
insurance company an order on the bank for the in- 
terest on the bonds as the s,ame became payable, under 
this plan should death occur the first year he would 
leave an estate of $1,478.16 instead of $1,000, or should 



SINGLE PREMIUM POLICY. 131 

death occur at age 75, he would still leave an estate 
of $1,478.16* instead of a $1,000 death claim, or should 
he live to age 96 the insurance company will pa.y 
him $1,000, the endowment due on his insurance pol- 
icy, which together with the bonds' of $478.16 will 
give a cash estate of $1,478.16, instead of $1,000, and 
he will not have jeopardized the $478.16 to loss by 
death in the meantime, and in addition to all this he 
will have $1.70 each year for the 61 years, and should 
he live to his expectancy age 66, he can surrender the 
life insurance policy to the life insurance company 
for $523.87 and with his bonds of $478.16 he would 
have a cash estate of $1,002.03, which is $2.03 in excess 
of the insurance estate he would leave should he die 
before he attained the -age of 96, or $2.03 in excess 
of the endowment of $1,000 HE would receive should 
he live to age 96. Of course these amounts seem 
small when calculated on a basis of a $1,000 death 
claim, but when applied to a $50,000 or a $100,000 
death claim they will be decidedly different. 

Judging from the amount of single premium life in- 
surance now being carried it would seem that this form 
of insurance is very popular. Any form of a limited 
payment life insurance policy becomes single premium 
insurance for the attained age of the insured at the 
end of the premium paying period. 

195. A ^Taid-Up^' Policy Is Not. 

It is not uncommon to hear policy-holders boast 
of the fact ''that they have a paid-up policy," when 
as a matter of fact the insurance contiained in the 
death claim is NOT paid-up. While it is true the 
insured is not required to pay any more premiums 
on the ''paid-up" policy, yet it makes little difference 
to the insurance company whether it receives the 
money in cash as a premium from the insured to pay 
for the actual insurance rem^aining in the death claim, 
or whether they receive the money in the form of in- 



132 FALLACIES OP LIFE INSURANCE. 

terest upon the money which the policy-holder has 
paid to the company to create the self -insurance fund, 
which it loans and applies the interests therefrom to 
pay the cost of the actual insurance in the death claim. 

If the prospective purchaser knew what he was 
really doing at the time the single premium insurance 
was purchased there would be very little of it sold. 
The fact is that the great majority of those who are 
paying such high prices for their life insurance do 
not realize what they are doing, nor why they are 
doing it. 

As the whole life twenty-payment form of single 
premium insurance is beyond any doubt the most 
popular form of limited payment whole life policies it 
will be next explained and the following illustrations 
and comparisons will undoubtedly be very interesting 
to a large number of policy-holders. 



TWENTY PAYMENT LIFE POLICY. 133 

CHAPTER X 

TWENTY-PAYMENT LIFE POLICY 

Policy No. 6. Premium $37,02. 

Age 35. Participating. Death Claim $1,000. 

American Table of Mortality and Three Per Cent 

Interest. 

IN CONSIDERATION of the representations in the 
application herefor, a copy of which is hereto attached 
and made a p^art hereof, and of the preminm of thirty- 
seven and 02/100 dollars to be paid on delivery of 
this policy and of the payment of a like premium on 
or before the second day of January in each succeed- 
ing year until the premiums for twenty full years 
shall have been paid, or until the prior death of the 
insured, the Blank Life Insurance Co., hereby insures 
the life of John Doe, in the sum of one thousand dol- 
lars, and promises to pay said sum at its home office, 
subject to the conditions and provisions hereinafter re- 
cited, upon receipt of due proof of the death of the 
insured during the continuance of this policy, and on 
its surrender, to Mary B. Doe, his wife, if living, or 
to such other beneficiary as may, according to the 
conditions hereof, be finally designated and recognized 
by endorsement hereon, or if no such beneficiary be 
then living, then to the executors or administrators 
of the said insured; deducting from said sum any 
indebtedness to the company hereon or secured hereby 
and any unpaid instalments of premium for the bal- 
ance of the policy year; subject in all cases to the 
conditions, benefits and privileges stated on the sec- 
ond or third pages hereof, all of which are made a part 



134 FALLACIES OF LIFE INSURANCE. 

of this contract as fully as if written over the sig- 
natures hereto affixed. 

Signed Signed 

Table of Loan and Surrender Values. 





Cash or 


Paid-up 


Extended Insurance 


Tears 


Loan Value 


Policy 


(Years) 


(Days) 


3 


$ 68.20 


$154 


7 


334 


4 


92.46 


205 


10 


212 


5 


117.52 


256 


13 


14 


6 


143.40 


306 


15 


75 


7 


170.14 


357 


17 


28 


8 


197.77 


407 


18 


246 


9 


226.31 


457 


20 


16 


10 


255.78 


507 


21 


81 


11 


286.24 


557 


22 


93 


12 


317.68 


606 


23 


64 


13 


350.16 


655 


24 


8 


14 


383.70 


704 


24 


307 


15 


418.33 


753 


25 


249 


16 


454.11 


803 


26 


220 


17 


491.07 


852 


27 


247 


18 


529.31 


901 


29 


9 


19 


568.89 


950 


31 


25 


20 


609.92 


Policy 


Fully Paid 





Note: 

The full reserve or cash surrender values are shown 
in the above table. Where the cash surrender values 
given in any policy issued on the three per cent basis 
are less, than the values here shown the difference in 
the cash surrender values represents the fee charged 
by the company for surrender. The full reserve values 
for the different ages and also for the years the policy 
has been in force will be found under article 333. 

A full explanation of the conditions, privileges and 
restrictions will be found in chapter XIV. 



TWENTY PAYMENT LIFE POLICY. 135 

196. Analysis. 

Policy number 6 as shown above is written to cover 
61 years of insurance (the insurance years from age 
35 to 96, w^hich is the possible life-time of the insured) 
to be paid for in twenty years. The twenty premiums 
pay for 61 years of insurance and $1,000, together with 
any so-called ^'dividends'' in excess, if insured lives, 
as the policy matures as an endowment for its face 
value at age 96. The average necessary rate at a fixed 
ycjarly premium at age 35 for $1,000 permanent Stand- 
ard Death Claim is $22.20, therefore $14.82 of each 
premium is an overcharge and all payments made to 
date of demise will be lost to the estate if the insured 
dies within the first twenty years, except that part re- 
turned as so-called ''dividends." 

If the insured dies within the first twenty years the 
policy provides to pay $1,000 death claim, exclusive of 
"dividends." Death after the twentieth year provides 
for the payment of $1,000 death claim, exclusive of 
"dividends," provided the insured leaves the guaran- 
teed cash surrender value of the policy $609.92, with 
the company at the end of the twentieth year; or, a 
"paid-up" policy of $1,000, payable after death for the 
$609.92 guaranteed cash value. 

The [actual insurance at the end of the twentieth 
year will be $390.08 and with the $609.92 guaranteed 
cash value or self -insurance fund will equal the $1,000 
death claim. The cost thereafter will be the interest 
worth of $609.92 cash left with the company to pay in 
advance to age 96, 24 years beyond expectancy, less 
"dividends," if any, which wall be very small after 
cessation of the payment of overcharge in premiums. 

By the payment of the overcharge contained m the 
premium to create the cash value or self-insurance 
fund required, the insured reduces the actual insurance 
contained in the death claim to $390.08 at the end of 
the premium paying period. The premiums paid and 
their interest worth are sufficient to carrv the insur- 



136 FALLACIES OF LIFE INSURANCE. 

ance to age 96, including any '^dividends." The over- 
charge in premiums enables the company to give in- 
creased surrender values. 

As the cash value or self-insurance fund IN- 
CEBASES the actual insurance DECREASES and the 
cost to the insured INCREASES. The CASH VALUE 
is NOT insurance. 

197. Illustration of Account to End of Sixth Year. 

By the payment of the overcharge contained in the 
premium to create the cash value or self -insurance fund 
required, the insured reduces the actual insurance con- 
tained in this policy to $856.60 at the end of the sixth 
year. 

If insured is alive and all premiums have been paid 
in cash to the end of the sixth year and there has been 
no loan secured thereon, the policy guarantees $143.40 
in cash with ^ ^ dividends, " if any, for surrender. Or 
in lieu of the $143.40 cash to become ^'paid-up" for 
$306 exclusive of any ''dividends" and payable after 
the death of the insured. Or to continue the $1,000 
death claim as a term policy for the next 15 years and 
75 days without further payment of premiums and if 
the insured is then alive to pay nothing as the term 
policy expires at that time. 

Itemized Statement. 
Death Claim, Exclusive of ''Dividends". .. .$1,000.00 
Cash Value, Exclusive of "Dividends" 143.40 



Actual Insurance, Exclusive of " Dividends ". $ 856.60 
Annual Premium Including " Dividends ".... $ 37.02 
Interest Worth of Cash Value at 5% 7.17 



Total Yearly Cost Including "Dividends". .$ 44.19 

198. Illustration of Account to End of the Tenth 
Year. 

By the payment of the overcharge contained in the 



TWENTY PAYMENT LIFE POLICY. 137 

premium to create the cash value or self -insurance fund 
required, the insured reduces the actual insurance con- 
tained in this policy to $744.22 at the end of the tenth 
year. 

If insured is alive and all premiums have been paid 
in cash to the end of the tenth year and there has been 
no loan secured thereon, the policy guarantees $255.78 
in cash with ^^ dividends/' if any, for surrender. Or 
in lieu of the $255.78 cash to become ''paid-up" for 
$507 exclusive of any ''dividends'' and payable after 
the death of the insured. Or to continue the $1,000 
death claim as a term policy for the next 21 years 
and 81 days without further premium payments and 
if the insured is then alive to pay nothing as the policy 
expires at that time. 

Itemized Statement. 

Death claim, exclusive of "dividends" $1,000.00 

Cash value, exclusive of "dividends" 255.78 



Actual insurance, exclusive of "dividends". .$ 744.22 
Annual premium including " dividends ".... $ 37.02 
Interest worth of cash value at 5% 12.78 



Total yearly cost including "dividends". .. .$ 49.80 

199. Illustration of Account to End of the Fifteenth 
Year. 

By the payment of the overcharge contained in the 
premium to create the cash value or self -insurance fund 
required, the insured reduces the actual insurance con- 
tained in this policy to $581.67 at the end of the fif- 
teenth year. 

If insured is alive and all premiums have been paid 
in cash to the end of the fifteenth year and there has 
been no loan secured thereon, the policy guarantees 
$418.33 in cash with "dividends," if any, for sur- 
render. Or in lieu of the $418.33 cash to become "paid- 
up" for $753 exclusive of any "dividends" and pay- 



138 FALLACIES OP LIFE INSURANCE. 

able after the death of the insured. Or to continue 
the $1,000 death claim as a term policy for the next 25 
years and 249 days without further payment of prem- 
iums and if the insured is then alive to pay nothing as 
the term policy expires at that time. 

Itemized Statement. 

Death claim, exclusive of ^'dividends" $1,000.00 

Cash value, exclusive of ^^ dividends" 418.33 



Actual insurance, exclusive of ' ^ dividends ".. $ 581.67 
Annual premium including ^'dividends'\ . . .$ 37.02 
Interest worth of cash value at 5% 20.91 



Total yearly cost including ^ ^ dividends ".... $ 57.93 

200. Twenty Payment Life. 

The whole life twenty piayment policy is one of the 
many policies written on the permanent insurance plan. 
The premiums on a permanent whole life policy may 
be payable in one sum or in ten, fifteen or twenty 
equal annual payments or yearly as long as the insured 
may live or to age 96, and it is on account of the com- 
pany permitting the insured to pay the premiums re- 
quired on so many different plans that necessitates 
the issuance of so many different forms of policies on 
the same plan of insurance. 

201. Possible Life-Time, Age 96. 

As all persons do not purchase their insurance at 
the same age and the fact that they do not all die at 
the sjame age, it becomes necessary for the company to 
establish an age limit or a time when all policy-holders 
are supposed to be dead. The American Table of Mor- 
tality places this age at 96, at which age all policy- 
holders are supposed to be dead as expressed by an 
insurance term. 

202. Level Premium. 

In order thiat the insured may pay an equal premium 



TWENTY PAYMENT LIFE POLICY. 139 

each year he must pay enough money in excess of the 
actual cost during the early years of the policy to 
offset the increase in mortality expense in the latter 
years. This excess money paid and its interest worth 
accumulations which the company must hold to meet 
the increase in mortality expense in the latter years 
of the policy, increases yearly to age 96, at which time 
the accumulated reserve or self-insurance fund equals 
$1,000 for each $1,000 death claim, regardless of the 
age of the insured at the time the policy is purchased 
and regardless of the rate of interest adopted by the 
company. 

203. Premiums and Their Results. 

Where a policy is written on the whole life plan the 
net single premium of $419.88 for age 35 is the mathe- 
matical equivalent of the net premium, of $21.08, pay- 
able for 61 years or the whole of life, or the net prem- 
ium of $49.73 payable for ten years, or the net premium 
of $36.34 payable for fifteen years, or the net premium 
of $29.85 payable for twenty years and vice versa ; 
and where a policy is purchased lat age 35 the net 
single premium of $419.88 payable in advance will 
reduce the amount the company has at risk in each 
$1,000 death claim to an amount Avhere the interest 
at three per cent will be sufficient to pay the mor- 
tality expense for the 61 years the policy is written to 
cover and enough in excess to create a self-insurance 
fund equal to $1,000 or the face of the policy at age 
96. For example, where the insured purchases a 
$1,000 death claim at age 35 and pays to the company 
the net premium of $419.88, as before stated, he im- 
mediately reduces the actual insurance in the death 
claim to $580.12, and should death occur during the 
first year the company (the other policy-holders) Avill 
be required to pay $580.12, which with the insured's 
self-insurance fund of $419.88 will equal the $1,000 
death claim. 



140 FALLACIES OF LIFE INSURANCE. 

For the next year (age 36) it will cost the company 
$8.82 for a $1,000 death claim or $5.11 for $580.12 
actual insurance. The $419.88 has earned at three per 
cent interest the first year, $12.59. The company sub- 
tracts the mortality expense of $5.11 for the current 
year, from the interest earned of $12.59, and adds the 
excess interest earned of $7.48 to the present reserve 
fund of $419.88, making a total reserve at the begin- 
ning of the second year of $427.36. This same process 
is carried out for the number of years the policy is 
written to cover, therefore $419.88 at the beginning 
at 61 years, improved at three per cent interest, will 
pay the mortality expense of the company and create 
a reserve fund of $1,000 at the end of 61 years or at 
age 96. 

The company at the beginning of the year calcu- 
lates its assumed mortality expense for the year and 
the amount so calculated is set aside as a mortality 
fund to pay the current year's death claims and should 
the company not experience the full estimated mortal- 
ity expense the balance of the unused mortality fund 
and the interest increments is put into the surplus 
fund. 

The net premiums required on the continuous prem- 
ium, ten, fifteen and twenty year forms, will pay the 
mortality expense for the actual insurance contained 
in the $1,000 death claim and create a self-insurance 
fund of $1,000 in the number of years the policy is 
written to cover. 

In addition to these net amounts he must pay his 
share for managing expenses and if he is to receive 
^^ dividends" he must contribute the money to be re- 
turned at some future time as ^ ^ dividends. " 

204. 'Taid-Up'' Insurance. 

It is the insured's desire to secure a ''paid-up pol- 
icy" that causes the demand for the limited paym^ent 
forms of policies, and if the insured understood or 
knew what he Wyas doing at the time the twenty pay- 



TWENTY PAYMENT LIFE POLICY. 141 

ment policy was purchased it is an even guess that 
he would not purchase the same. 

The insured would not consider it prudent or a good 
business deal to pay $609.92 in one premium for a 
$1,000 ''paid-up" death claim at age 55, yet that is 
exactly what he is doing when he purchases a $1,000 
death claim on the whole life twenty payment plan 
at age 35, from a company operating on a three per 
cent basis. He is even doing v^orse than that, because 
he is paying to the company $8.77 yearly (the differ- 
ence between the net premium of the whole life policy 
and the net premium of the twenty payment policy) 
for which he will r^^^eeive absolutely no benefit until 
he has lived twenty years, and he is subjecting the 
same to loss by death in the meantime. 

205. Excess Reserve May Be Also Lost by Death. 

When the insured selected the plan of having his 
''dividends" upon the policy paid annually because he 
did not want the company to retain the overcharge 
of $6.92 for "dividends" yearly for twenty years 
for fear they would be lost to his estate should death 
occur in the meantime, yet he is allowing the com- 
pany to retain the overcharge of $8.77 for reserve 
yearly for twenty years, without considering that these 
payments may also be lost by death in the meantime. 

206. "Deferred Dividends." 

Where the above policies are issued on the "deferred 
dividend" plan, the payment of the "dividends" being 
deferred to the end of the premium paying period, it 
is not always advisable to surrender the policy for 
its cash value, more especially where it has been in 
force for many years. Should the policy be surren- 
dered the "deferred dividend" ^accumulations would 
be lost to the insured and the loss of the "deferred 
dividends" upon surrender after the tenth year would 
be greater than the loss sustained by paying the bal- 
ance of the premiums. 



142 FALLACIES OP LIFE INSURANCE. 

Instead of paying any further premiums upon the 
policy where it is to be surrendered the insured should 
borrow from the company each year the amount of the 
premium. The premium so retained would be equiva- 
lent to receiving the ^'accrued dividends" by instal- 
ments and the retaining of the premiums would not 
reduce the amount of the ^^ dividends" to be paid in 
the future nor the death claim in case of death, as 
the policy provides that any ^^ accrued dividends" will 
be paid to the beneficiary in addition to the death 
claim and the '^ dividends" will be paid in addition to 
the cash value of the policy should it be surrendered, 
and all premiums so retained would not be lost to 
the insured's estate should death occur. The interest 
worth of the premiums so retained would offset the in- 
terest charged by the company. 

Any/ ^dividends" payable under any form of a life 
insurance policy should always be withdrawn annu- 
ally in cash and never left with the company to pur- 
chase * ^paid-up" additions ,as any '^paid-up" addi- 
tions are calculated on the single premium basis and 
single premium insurance is the most expensive form 
of permanent life insurance. 

If the insured had purchased the above policy on 
the whole life continuous premium plan and had in- 
vested the difference in premiums of $8.77 yearly for 
twenty years at five per cent he would have had 
$304.49, and if he desired to cease paying premiums 
the twentieth year he could have paid the company 
$282.34 additional reserve required for the twenty 
payment life policy to equal the single premium at 
age 55 of $609.92 and secured a ^'paid-up" policy and 
had $22.15 in excess, ,and should he have died the 
twentieth year he would have left an estate of $1,304.49 
instead of $1,000 under the twenty payment plan. 
207. Policy Loans are not Profitable to the Insured. 

Loans should never be secured upon a life insur- 
ance policy where the insured is in good health ex- 



TWENTY PAYMENT LIFE POLICY. 143 

cept where the policy is written on the '^deferred 
dividend'' plan and there are certain conditions under 
which the insured may not be justified in securing a 
lo,an on the policy when in poor health. 

Where the insured is in good health and in a posi- 
tion to secure a new policy from the company, if 
the present insurance is secured upon a form which 
is particularly adapted to the best interests of the 
insured, where a loan is desired the present policy 
could be surrendered and a new one secured upon the 
same form at the attained age of the insured. If the 
present policy is not adapted to meet the best inter- 
ests of the insured it could also be surrendered and 
one secured written upon a form that does. It will 
not cost the insured any more to carry his insurance 
under a new policy than it will cost him under an 
old policy which has been in force for many years. 

Where the insured secures money from the company 
on the sole security of the policy he may rest assured 
that he is not securing the money that belongs to 
the company (the other policy-holders). He is simply 
securing his own money which he has deposited with 
the company to create the reserve or self-insurance 
fund which will enable him to pay a level or equal 
premium each year during the continuance of the pol- 
icy, or money he has paid to the company in excess 
of the premiums required for the whole life continuous 
premium policy in order that he may cease paying 
premiums after a limited number of years or money 
which he has deposited with the company under some 
form of an alleged *' investment" which the company 
will return to the insured at some future time pro- 
viding he lives. 

If the insured desired to secure money from the 
company which belonged to some of the other policy- 
holders, the state laws provide that in order that this 
may be done the insured must give a first mortgage on 
real estate, most generally farm property, the company 



144 FALLACIES OF LIFE INSURANCE. 

being permitted to loan an amount equal to one-half 
the appraised value of the real estate. There are also 
some forms of bonds which the company is permitted 
by law to accept as security for money loaned. 

208. Illustration. 

In order to illustrate the disadvantage of securing 
a loan on a life insurance policy where the insured is 
in good health and also to show that a life insurance 
policy may be surrendered and new insurance pur- 
chased at an advanced age without loss to the in- 
sured let us suppose that ^^A" purchased a $10,000 
life insurance policy at age 35 (any other age will 
produce proportionate results) on the whole life 
twenty premium plan from a non-participating com- 
pany for the ,average annual premium of $301. 

As any ^^ dividends" to be received upon a life in- 
surance policy issued by a participating company can 
only be estimated amounts the non-participating plan 
is here used for illustration to avoid explaining the 
^^ dividend" results were the policy issued by a par- 
ticipating company, ,and as all the leading non-par- 
ticipating companies are operating on the three and 
one-half per cent reserve basis the cash values and 
the premiums to be paid will be based on the average 
premuim adopted by the non-participating companies. 
As most all the non-participating companies charge a 
surrender fee where the policy is to be surrendered 
for its cash value or the amount to be loaned on the 
policy is less than the full reserve accumulated there- 
on, the following illustration will be based upon the 
supposition that the insured was able to secure as a 
loan the full amount of the accumulated reserve or 
cash value. 

^^A" would be able to secure $2,600 as a loan on 
his $10,000 policy at the end of the 11th year or at 
the time the twelfth premium was payable. As the 
interest on a loan is payable in advance, he would 



TWENTY PAYMENT LIFE POLICY. 145 

be required to pay the premium of $301 plus the in- 
terest worth of the loan of $130 or a total of $431. 
Should death occur at any time before the loan is 
repaid to the comp,any the amount of the loan ($2,600) 
would be deducted from the death claim of $10,000, 
therefore the annual premium of $301 plus the in- 
terest worth of $130, which represents the total an- 
nual cost of $431, would not be paid for a death claim 
of $10,000, but only for a death claim of $7,400, and 
this amount represents the actual insurance contained 
in the death claim at the end of the eleventh year. 

The insured would be able to purchase from the 
company a new policy of $7,400 at an average annual 
premium of $294.58 for his attained age of 46, which 
is $136.42 less than he is paying for the $7,400 insur- 
ance under the original plan where the loan was made, 
therefore he would save $136.42 yearly for the next 
nine years ; $136.42 yearly improved at five per cent 
interest for nine years would amount to $1,579.74. The 
cash value of the new insurance at the end of the 
nine years of $1,952.86, plus the savings and their in- 
terest worth for nine years, would give a total cash 
of $3,532.60 at the end of the ninth year or at the 
time the present policy would become '^paid-up." 

The cash value of the original $10,000 policy at the 
end of the twentieth year would be $5,660, deduct- 
ing the amount of the loan of $2,600, would leave a 
cash value of the original policy at the end of the 
twentieth year of $3,060, which is $472.60 less than 
the tot,al cash of $3,532.60, to be derived by exchang- 
ing the present policy for the new insurance at the 
advanced age of 46. 

If the insured desired a ^'paid-up'' policy of $10,000 
under the present policy he would be required to re- 
pay the loan of $2,600 at the time the present policy 
would become ^^ paid-up.'' Instead of repaying the 
loan if the insured would keep the $2,600 together 
with the savings for nine years of $1,579.74, he would 



146 FALLACIES OF LIFE INSURANCE. 

have a total of $4,179.74. Surrender $2,000 of the 
$7,400 insurance for a c.ash value of $527.80, add this 
to $4,179.74, making a total estate of cash $4,707.54, 
and insurance estate of $5,400, or a total estate in 
case of death of $10,107.54. 

The premium on the remaining $5,400 insurance 
would he $214.86. The interest worth of the cash 
($4,707.54) of $235.37 will pay the new premium with 
an excess of $20.51 for the next eleven years, ,at which 
time the $5,400 insurance would become ^^ paid-up.'' 
The interest on the cash thereafter would give the 
insured an income of $235.37 for life. 

209. Strong Competition. 

The strenuous competition now existing between 
the life insurance companies is not only forcing a re- 
duction in premium rates, but each company is striv- 
ing to excel its competitors by giving more liberal 
policy conditions. See conditions the policy should 
contain, chapter XIV. 

210. Should Old Adverse Policies Be Surrendered? 

It is a very common occurrence for a policy-holder 
to secure a new policy from the company, in which he 
is already carrying a considerable amount of insur- 
ance, for a less premium and great deal more liberal 
policy conditions. In order to prevent the policy-hold- 
ers from surrendering their old adverse policies and 
securing their insurance under the more favorable con- 
ditions the company is constantly reminding its pol- 
icy-holders that their old policies being purchased at a 
younger age furnishes their insurance at a less cost 
than were they to surrender the same and purchase 
their insurance at a higher premium rate for their 
advanced age; that having carried their old policies 
for several years they have become very valuable to 
the insured; that they are now almost ^'paid-up" per- 
haps and that were the insured to surrender the same 



TWENTY PAYMENT LIFE POLICY. 147 

he would sustain great financial loss. In fact all the 
inducements conceivable are brought to bear on the 
policy-holders to prevent them from surrendering their 
present policies and also to prevent the policy-holders 
from gaining any knowledge of the fundamental prin- 
ciples of life insurance. 

The following illustrations should be sufScient to 
convince the public that at least SOME of the con- 
tentions put forth by the officers of some of the life 
insurance companies are absolutely misleading to say 
the least of it. 

211. Illustration for Sixth Year. 

Let us suppose that '^A'' at age 35 purchased a 
$1,000 death claim issued on the whole life twenty 
payment plan, which is shown above for analysis, and 
after six years had decided to surrender the same for 
its cash value and purchase a $1,000 death cl,aim on 
the whole life continuous premium plan from a non- 
participating company which would give the $1,000 
death claim at the smallest guaranteed cost. 

As some companies do not charge a surrender fee 
the following illustrations will be based on the as- 
sumption that ^'A" was able to secure from the com- 
pany the full amount of the accumulated reserve or 
self-insurance fund for surrender and as practically 
all the non-participating companies are operating on 
the three and one-half per cent re^serve basis the aver- 
age non-participating premium will be used for illus- 
tration and the surrender values of the new insur- 
ance will be based on the three and one-half per cent 
reserve. 

As shown in article 197, ''A" had reduced the actual 
insurance contained in his policy by the accumulation 
of his excessive self-insurance fund ,at the end of the 
sixth year to $856.60 and he could purchase $856.60 
new insurance at his attained age, 41, on the non-par- 
ticipating whole life continuous premium plan for the 



148 FALLACIES OF LIFE INSURANCE. 

average premium of $23.21. The interest worth of the 
cash value of the present policy ($143.40) at five per 
cent is $7.17. The interest worth of the cash would 
reduce the cost of the new insurance to $16.04, which 
is $20.98 less than the present full premium, therefore 
he would save $20.98 yearly for the next 14 years, and 
should death occur in the meantime the $143.40 cash 
value of the present policy plus the new insurance of 
$856.60, would leave an estate of $1,000 the same as 
under the present policy. The savings of $20.98 yearly 
at five per cent would amount to $431.73 at the end of 
14 years. Should ^^A" wish to surrender the new 
insurance at the end of 14 years or at the end of the 
premium paying .period of the present policy it will 
have a cash value of $217.28. The cash value of the 
present policy ($143.40), plus the savings and their 
interest worth of $431.73, plus the cash value of the 
new insurance of $217.28, would give a total cash of 
$792.41, which is $182.49 in excess of the cash value 
of the present policy ($609.92) at the end of the twen- 
tieth year. 

By reforming the present policy as shown above 
should death occur ,any time during the 14 years ''A" 
would not only have an insurance estate of $1,000, the 
same as under the present plan, but in addition there- 
to the estate would be increased each year to date 
of demise, the amount of the savings and their inter- 
est worth. Death during the seventh year would leave 
an estate of $1,020.98 and should death occur at the 
end of the 14tli year under the new plan he would 
leave an estate of $1,431.73, instead of $1,000 under 
the present plan, or an average excess estate for the 
whole 14 years of $226.35. 

Any ^'dividends" ^'A" might receive under the 
present policy would NOT purchase sufficient insur- 
ance to leave an equal estate should death occur dur- 
ing the 14 years. Should ''A" live to the end of 
the 14th year any ''dividends'' he might receive under 



TWENTY PAYMENT LIFE POLICY. 149 

the present policy would NOT equal the excess cash 
of $182.49. 

Should '^A" desire to leave a ^^ paid-up" insurance 
estate of $856.60, instead of surrendering the new 
policy at the end of the 14th year, he would be re- 
quired to pay the company the difference between the 
reserve already accumulated, $217.28, and $522.55, the 
net single premium required for $856.60 ^^ paid-up'' in- 
surance for his attained age, 55, which is $305.27. The 
cash value of the present policy, $143.40, plus the sav- 
ings and their interest worth $431.73 for 14 years, will 
equal $575.16. This amount will pay the $305.27, the 
amount required for the single premium for his at- 
tained age, 55, and leave an excess of $269.86. Upon 
^'A's" death he would leave an insurance estate of 
$856.60, together with the excess cash of $269.86, or 
a total estate of $1,126.46, instead of $1,000 under the 
present plan. 

212. Illustration for Tenth Year. 

Let us suppose that ^'A" had carried the above 
policy for ten years and desired to purchase a policy 
that would furnish the actual insurance contained in 
the present policy at a greatly reduced cost. 

As shown in article 198, ^'A" had reduced the actual 
insurance contained in his policy by the accumulation 
of his excessive self-insurance fund at the end of the 
tenth year to $744.22, and he could purchase $744.22 
new insurance at his attained age, 45, on the non- 
participating whole life continuous premium plan for 
the average premium of $23.49. The interest worth of 
the cash value of the present policy ($255.78) at five 
per cent is $12.78. The interest worth of the cash 
will reduce the yearly cost of his new insurance to 
$10.71, which is $26.31 less than the present full prem- 
ium, therefore he would have $26.31 yearly for the 
next ten years and should death occur in the mean- 
time the $255.78 cash value of the present policy plus 



150 FALLACIES OF LIFE INSURANCE. 

the new insurance of $744.22, would leave an estate 
of $1,000 the same as under the present policy. 

The saving of $26.31 yearly improved at five per 
cent would amount to $347.55 at the end of ten years. 
Should ^^A'' wish to surrender the new insurance at 
the end of ten years or at the end of the premium pay- 
ing period of the present policy, it will have a cash 
value of $150.68. The cash value of the present policy 
$255.78, plus the savings and their interest worth of 
$347.55, plus the cash value of the new insurance of 
$150.68, would give a total cash of $754.01, which is 
$144.09 in excess of the cash value of the present pol- 
icy ($609.92) at the end of the twentieth year. 

Should ''A" desire to leave a ^^ paid-up'' insurance 
estate of $744.22 instead of surrendering the new pol- 
icy at the end of the tenth year, he would be re- 
quired to pay the company the difference between, the 
reserve already accumulated, $150.68, and $453.91, the 
net single premium required for $744.22 '^paid-up" 
insurance for his attained age of 55, which is $303.23. 
The cash value of the present policy, $255.78, plus the 
savings and their interest worth $347.55 for ten years, 
will equal $603.33. This amount will pay the $303.23, 
the amount required for the single premium for his 
attained age, 55, and leave an excess of $300.10. Upon 
*^A's" death he would leave an insurance estate of 
$744.22, together with the excess cash of $300.10, or a 
total estate of $1,044.32, instead of a $1,000 death 
claim under the present plan. The interest worth of 
the cash, $300.10, would give an income of $15.00 an- 
nually for life. 

By reforming the present policy as shown above 
should death occur any time during the ten years ^^A" 
would not only leave an estate of $1,000 the same as 
under the present plan, but in addition thereto the es- 
tate would be increased each year to date of demise 
the amount of the savings and their interest worth. 
Death during the eleventh year would leave an estate 



TWENTY PAYMENT LIFE POLICY. 151 

of $1,026.31, and should death occur at the end of the 
tenth year under the new plan he would leave an es- 
tate of $1,347.55, or an average excess estate for the 
whole ten years of $186.93. 

Any ^'dividends" ^^A" might receive under the pres- 
ent policy would NOT purchase sufficient insurance 
to leave an equal estate should death occur during 
the ten years. Should ^^A" live to the end of the 
tenth year of the new policy any ^^ dividends" he 
might receive for the remaining ten years would NOT 
equal the excess cash of $144.09. 

213. Illustration for Fifteenth Year. 

Let us suppose that ^^A" had carried the above pol- 
icy for 15 years and desired to purchase a policy that 
would furnish the actual insurance contained in the 
present policy at a greatly reduced cost. 

As shown in article 199 ^^A" had reduced the ac- 
tual insurance contained in his policy by the accumula- 
tion of his excessive self -insurance fund at the end 
of the 15th year to $581.67 and he could purchase 
$581.67 new insurance at his attained age, 50, on the 
non-participating whole life continuous premium plan 
for the average premium of $22.62. The interest 
worth of the cash value of the present policy ($418.33) 
at five per cent is $20.91. The interest worth of the 
cash will reduce the yearly cost of his new insurance 
to $1.71, which is $35.31 less than the present full 
premium, therefore he would save $35.31 yearly for 
the next five years and should death occur in the 
meantime the $418.33 cash value of the present policy 
plus the new insurance of $581.67 would leave an es- 
tate of $1,000 the same as under the present policy. 

The saving of $35.31 yearly, improved at five per 
cent, would amount to $204.79 at the end of five years. 
Should ^^A" wish to surrender the new insurance at 
the end of five years or at the end of the premium 
paying period of the present policy, it will have a 



152 FALLACIES OP LIFE INSURANCE. 

cash value of $68.23. The cash value of the present 
policy, $418.33, plus the savings and their interest 
worth of $204.79, plus the cash value of the new in- 
surance of $68.23, would give a total cash of $691.35, 
which is $81.43 in excess of the cash value of the pres- 
ent policy ($609.92) at the end of the twentieth year. 

Should ^^A" desire to have a ^'paid-up" policy un- 
der the new plan, the same as he would have had had 
he continued the present policy for the full tw^enty 
years if in good health, he would only be required 
to pay to the company the difference between the ac- 
cumulated reserve of the new insurance, $68.23, and 
the single premium of $609.92 for his attained age, 
55, which is $541.69. The savings and their interest 
worth for five years of $204.79, together with the cash 
value of the present policy of $418.33, would equal 
$623.22. This amount would pay the $541.69, the 
amount required to equal the single premium of $609.92 
at age 55 and leave an excess of $81.43. 

By reforming the present policy as shown above 
should death occur any time during the five years 
^^A" would not only leave an estate of $1,000 the 
same as under the present plan, but in addition there- 
to the estate would be increased each year to date 
of demise, the amount of the savings and their inter- 
est worth. Death during the 16th year would leave 
an estate of $1,035.31, and should death occur at the 
end of the fifth year under the new plan he would 
leave an estate of $1,204.79 or an average excess estate 
for the whole five years of $120.05. 

Any '^dividends'' *'A" might receive under the pres- 
ent policy for the five years would NOT purchase suf- 
ficient insurance to leave an equ'al estate should death 
occur during the five years. Should ^*A" live to the 
end of the fifth year of the new policy any ^'divi- 
dends" he might receive under the present policy 
would NOT equal the excess cash of $81.43. 



TWENTY PAYMENT LIFE POLICY. 153 

214. Ordinary Life Policies Can Be Converted Any 

Year. 

Any whole life continuoiis premium policy may be 
converted any year into a single premium or ^'paid- 
up'', policy by the payment of the difference between 
the accumulated reserve on the whole life policy and 
the net single premium required for the attained age 
of the insured and this may be done without a med- 
ical re-examination, as it is only fair to presume that 
the company would be only too glad to accept the 
excess payment if they knew the insured was going 
to die during the next year. 

If the insured will compare the figures shown above 
in the itemized statements it will be easy to deter- 
mine whether or not a life insurance policy becomes 
more valuable, from year to year, to the insured as 
claimed by the life insurance companies and their 
agents. 

215. Above Policy Can Be Surrendered Without Loss. 

If the insured is in good health and able to secure 
new insurance, there is no year from the third year 
of the policy to the age limit at which insurance can 
be secured, which is generally about age 65, that the 
policy cannot be surrendered and the actual insurance 
remaining in the death claim purchased for the at- 
tained age of the insured at a less cost where money 
is worth at least five per cent to the insured. 

216. Single Premium Insurance. 

Any form of a limited payment whole life policy 
becomes a single premium policy at the end of the 
premium paying period. In reality it is NOT "paid- 
up," it is simply transformed to a single premium 
policy and on account of the insured not being re- 
quired to pay any more premiums does not signify 
that the company is not receiving payment for the 
actual insurance contained in the death claim or the 



154 FALLACIES OF LIFE INSURANCE. 

amo-ant of money the company has at risk. The com- 
pany DOES receive payment for the actual insurance 
contained in the death claim. 

217. Illustration. 

Let us suppose that the insured at age 35 would pur- 
chase a $1,000 death claim on the non-participating 
whole life continuous premium plan for the average 
premium of $22.20. Pay to the company the first 
premium of $22.20 and deposit $740.00 in the bank at 
three per cent, give the insurance company an order 
on the bank for the interest each year of $22.20, and 
the insured will not have to pay the company any 
more premiums and he will have a ^ ^paid-up" death 
claim of $1,000. While the insured will not be pay- 
ing any more premiums the insurance company will 
be receiving the payment for the actual insurance just 
the same. 

Under this plan the cash value of the policy would 
be the accumulated reserve or self-insurance fund on 
the death claim at the end of the year it is to be sur- 
rendered plus the cash in the bank of $740. By adopt- 
ing this plan the single premium $1,000 death claim 
would have cost the insured $22.20 in cash and the 
interest worth of $740 as long as he kept the policy in 
force. 

218. Ten Payment Single Premium Plan. 

A $1,000 death claim issued on the ten payment 
whole life plan on a three per cent basis at age 35 
will require the net single premium of $504.59 when 
the insured has attained the age of 45. The net an- 
nual premium on the ten payment plan of $49.73 and 
its interest worth at three per cent at age 35 will pay 
the insured's share of the mortality expense for the 
ten years and create a self-insurance fund or net sin- 
gle premium of $504.59 at the end of the tenth year. 
The interest worth of the $504.59 at three per cent will 



TWENTY PAYMENT LIFE POLICY, 155 

pay the mortality expense for the next ten years and 
create a reserve or self-insurance fund of $609.92 (age 
55), which is the net single premium at that age. 

219. Fifteen Payment Single Premium Plan. 

The fifteen payment plan of whole life insurance 
requires the payment of a little smaller premium than 
the ten payment life because the insured will be re- 
quired to make fifteen payments. The cash value or 
self-insurance fund on a $1,000 death claim issued on 
the fifteen payment whole life plan on the three per 
cent basis at age 30 at the end of the fifteenth year 
or at age 45 is the same as the single premium 
($504.59) on the ten payment life in ten years, and 
after ten years or at age 55 will equal $609.92 the 
net single premium required at age 55. To the net 
premiums here given must be added sufficient money 
to pay the insured's share of managing expenses and 
if he is to receive '^ dividends" he must pay to the 
company the money to be returned at some future 
time as ^^ dividends." 

220. Insurance Must Be Paid For. 

The insured must ever remember that as long as 
his policy remains in force he must pay to the com- 
pany in some way the cost of the actual insurance 
remaining in the death claim for his attained age. 

221. Different Interpretations. 

It is remarkable that so many misleading interpre- 
tations can be obtained upon the principles of life 
insurance by the average policy-holder. 

222 Illustration. 

In order to illustrate one of the most common in- 
consistencies let us suppose that ^^A" at age 35 pur- 
chased two $1,000 death claims. He secures number 
one (1) from a legal reserve company operating on 



156 FALLACIES OF LIFE INSURANCE. 

the three and one-half per cent basis on the whole life 
twenty payment plan for the average non-participat- 
ing premium of $30.10. He purchases number two (2) 
from an assessment company for the average premium 
of $14.40. At age 55 policy number one (1) becomes 
''paid-up" and ''A" feels very much relieved to think 
that his $1,000 death claim will cost him nothing there- 
after. 

Let us suppose that ''A" should be ''forced" to 
pay $38 for the assessment policy after the twen- 
tieth year or at age 55, instead of $14.40. As his 
legal reserve policy only cost him $30.10, he would 
undoubtedly allow the assessment policy to lapse on 
the account of having to pay what he considered "a 
too high premium." Let us see which policy was cost- 
ing the most for the actual insurance at age 55. 

By the payment of the difference in premiums on 
the two policies of $15.70 "A" had reduced the actual 
insurance in the legal reserve death claim to $433.85. 
The interest worth of the cash value or self -insurance 
fund ($566.15) at five per cent of $28.30 would not 
be paid for $1,000 of insurance, but for $433.85 of 
insurance, and if $433.85 cost him $28.30, $1,000 would 
cost him $65.20. The actual insurance remaining in 
the $1,000 death claim under the assessment policy 
after the twentieth year would be practically $1,000. 
Therefore if "A" was "forced" to pay $38, he would 
not be paying anywhere near as much for his insur- 
ance under the assessment policy as he would under 
the legal reserve. "While it is true that the legal re- 
serve policy would have a cash value of $566.15, 
yet this was "A's" own money that he had paid to 
the company in excess of the actual cost of the insur- 
ance. Had "A" kept the difference in premiums of 
$15.70, the same as they would have been kept by the 
insurance company, the difference in the premiums and 
their interest worth at five per cent yearly would 
amount to $545.10 in twenty years or within $21.05 of 



TWENTY PAYMENT LIFE POLICY. 157 

the cash value of the legal reserve policy and had 
death occurred in the meantime, under the assessment 
policy ''A's" beneficiary would have received the 
$1,000 death claim plus the savings in premiums and 
their interest worth yearly to date of demise, while 
under the legal reserve policy the beneficiary would 
only receive the $1,000 death claim. 

Had ''A" carried both of the above policies to age 
55 and decided at that time to surrender the same on 
the account of not needing the insurance any longer 
the legal reserve policy would have a cash surrender 
value of $566.15, while the assessment policy would 
have no surrender value and ^'A" would feel that he 
had got the worst of it from the assessment company 
and would probably never purchase assessment insur- 
ance again on account of all of the premiums he had 
paid being lost, never taking into consideration the 
fact that he had had the difference in premiums of 
$15.70 yearly to use in his business and that had he 
kept the $15.70 yearly and its interest worth he would 
have had $545.10 or within $21.05 of the cash value 
of the legal reserve policy and had death occurred 
the twentieth year the savings of $545.10 would not 
have been lost to the beneficiary. 

The legal reserve policy would have been far the 
best in ^^A's" estimation because he would have car- 
ried the $1,000 death claim for twenty years and 
would have been able to receive $566.15 without hav- 
ing to die, never stopping to think that this was his 
own money that he had paid to the company in excess 
of the actual cost to the company of the actual in- 
surance contained in the death claim, to purchase the 
*^ paid-up" or single premium policy at the end of 
twenty years. 

223. Extra Features Must Be Paid For. 

On account of the twenty payment life policy being 
the most popular form of limited payment whole life 



158 FALLACIES OF LIFE INSURANCE. 

policies it is not uncommon to find policies founded 
upon the same basic principles, but containing addi- 
tional features, and the reader may rest assured that 
any of these features must be paid for in addition to 
the premiums required for the regular twenty pay- 
ment whole life policies and the purchaser of these 
forms most generally pays very dearly for any addi- 
tional benefits offered by these different forms of poli- 
cies. 

If the author undertook to explain all these differ- 
ent ''new-fangled" forms of twenty payment policies 
in detail it would required almost unlimited space. 

In order to convince the reader that there is no ad- 
vantage to be obtained by purchasing these adverse 
forms of policies, which are so skilfully designed to 
deceive the public, a short analysis will be here given 
of the most objectionable and also the most widely 
advertised forms. 

224. Twenty Payment Whole Life *'5 Per Cent Gold 
Bond/' 

The first of these to be analyzed will be what is 
called the ''20 payment whole life 5% gold bond." 
This plan as applied to the endowment policy was 
explained in the preceding chapter, article 172. When 
applied to the endowment policy the "gold bond'' 
was to be payable to the beneficiary should the death 
of the insured occur during the endowment period and 
the "gold bond" would be delivered to the insured 
should he survive the endowment period, but under 
the "twenty payment whole life gold bond plan" the 
bonds are only to be delivered to the beneficiary upon 
the death of the insured. As the officers of the in- 
surance companies know that it is very easy to secure 
good reliable bonds which would pay a "dividend" of 
five per cent from any bank or trust company, in order 
to furnish the insured or his beneficiary a good sub- 
stantial investment paying five per cent the "five per 



TWENTY PAYMENT LIFE POLICY. 159 

cent gold bond policy '^ was originated. The issuance 
of these bonds enables the insurance company to com- 
pete to the fullest extent with our banks and trust 
companies. 

As the insurance companies are operating on the 
three, three and one-half and four per cent reserve 
basis it would be unlawful for them to guarantee to 
their policy-holders a legitimate five per cent dividend. 
In order to cover up this point and make it appear 
that the insurance company really pays a five per cent 
dividend or that the company will deliver the gold 
bond paying five per cent to the beneficiary after the 
death of the insured, he must pay premiums for the 
^'gold bond policy'' sufficient to purchase $1,300 of 
life insurance on the regular whole life twenty pay- 
ment plan. Upon the death of the insured the $1,300 
death claim is paid to the company and in lieu there- 
of, the company issues to the beneficiary a $1,000 '^gold 
bond" paying five per cent interest for twenty years 
and at the end of that time will deliver the $1,000 to 
the beneficiary. Three per cent interest yearly on 
the $1,000 bond is $30 and this is all a company op- 
erating on the three per cent basis could legitimately 
pay, but the $300 additional insurance, the insured 
purchased, with the interest increments, enables the 
company to pay the two per cent extra for the twenty 
years and at that time deliver to the beneficiary the 
^'gold bond" which represents $1,000 of the $1,300 
purchased. 

Had the insured purchased $1,300 of insurance on 
the twenty payment whole life plan and left the pol- 
icy with some bank or trust company with instruc- 
tions to collect the $1,300 insurance upon the death 
of the insured and instead of paying the death claim 
to the beneficiary, purchase $1,300 worth of LEGITI- 
MATE bonds paying five per cent, the beneficiary 
would have an income of $65 yearly instead of $50 
for each $1,000 ^^gold bond" purchased. 



160 FALLACIES OF LIFE INSURANCE. 

If the insured and the beneficiary are the same age 
and should the insured purchase the ^^gold bond'' at 
age 40 and only live twenty years, the time required 
to pay the premiums, the beneficiary would be re- 
quired to live to age 80 to receive the much coveted 
"five per cent gold bond." Is it any wonder that cer- 
tain states have passed laws forbidding the issuance 
of such GOLD BRICK schemes? 

225. "Twenty-eight Year Endowment/' 

The next policy to be explained will be the twenty 
payment whole life policy which may be converted 
into an endowment maturing in eight years, and by 
the payment of eight additional premiums which is 
in reality a twenty-eight year endowment policy. To 
the unsuspecting purchaser of insurance this prop- 
osition might appear a good one at a glance, but let 
us analyze it and see whether the insured gets value 
received or not. 

The policy is written on the whole life twenty an- 
nual premium plan for the annual premium of $38.58 
for age 35. The company's regular rate for a whole 
life twenty-payment policy is only $38.34, therefore 
there is $0.24 'Hacked on to the premium" for some 
reason, perhaps to enable the company to pay a lit- 
tle larger '^ dividend" as this policy is a little out of 
the ordinary. $38.34 is the annual premium required 
by the company for twenty years for a $1,000 death 
claim and pay the insured's share of mortality ex- 
pense and to create a cash value or self -insurance fund 
of $1,000 and to pay the insured's share of managing 
expenses and all of the money to be returned to the 
insured as '^ dividends" for 61 years, or until the in- 
sured attains the age of 96. 

If the insured lives and pays premiums for twenty 
years the cash value or self-insurance fund will amount 
to $609.92. If the insured lives eight years longer 
or to the end of the endowment period the accumu- 



TWENTY PAYMENT LIFE POLICY. 161 

lated reserve or self-insurance fund from the twenty 
premiums already paid will amount to $700.83, and 
the insured could surrender the policy for this 
amount. The eight additional premiums of $38.58 
yearly and their interest worth at 3% will make up the 
additional $299.17 required for the $1,000 endowment 
and leave $54.22 to be returned as ^'dividends'' in the 
eight years. Where the insured purchases the above 
policy at age 35 and takes advantage of the endow- 
ment conversion privilege, the premium paying pe- 
riod is extended to within less than four years of the 
insured's expectation of life and should the death of 
the insured occur previous to the end of the endow- 
ment period all of the extra premiums paid to date 
of demise will be lost to the insured's estate. The 
above policy is one of the most objectionable forms 
offered for sale and should not be purchased. 

226. Whole Life 20 Payment Return Premium Policy. 

This form of policy is written under several differ- 
ent aliases, ''the return premium" or "premium re- 
fund" are all the same form of policies. 

The return premium or premium refund policies 
are simply the whole life, limited payment life, or 
any form of endowment policy to which has been added 
graded term insurance to the amount of the premiums. 
It is NOT a return of the premium in the true sense 
of the word. The insured simply purchases term in- 
surance to the amount of the premiums. 

227. Whole Life 20 Payment Guaranteed Premium 

Reduction Policy. 

This form of policy is generally issued with a beau- 
tifully engraved sheet of "coupons" attached (nine- 
teen in number) and appears very attractive and it is 
generally as misleading as it is attractive. This form 
of policy is issued by some of the participating com- 
panies and some of the non-participating companies 



162 FALLACIES OP LIFE INSURANCE. 

and most generally by the younger companies. In 
nearly all cases an extra high premium is charged at 
first, sometimes as high as $40 for a $1,000 death claim 
for age 35, by a company operating on the three and 
one-half per cent basis. The net premium required 
for a $1,000 whole life policy on the three ana one- 
half per cent basis at age 35 is $27.40. Therefore 
when the first premium of $40 is charged, the insured 
pays an overcharge of about $10 allowing a good 
liberal loading for expense of management. The full 
overcharge is not returned at the time the second 
premium is paid, the coupons being filled out in in- 
creasing amounts, thereby giving the insured the im- 
pression that he is securing the $1,000 death claim 
at a reduced cost each year. "While it is true that 
the cost is reduced each year, yet the insured has 
paid excess money in the early years of the policy 
which may and should reduce the cost in after years 
below that of the regular premiums charged by the 
other companies. 

The amount payable on any coupon policy is simply 
a refund of the insured's cash paid to the company 
in excess of the net premium together with a reason- 
able amount contributed for expense of management. 

The coupon policies are becoming very popular per- 
haps on the account of their attractiveness, and the 
prospective purchaser should never purchase any form 
of a coux)on policy, as there is absolutely nothing to 
be gained by so doing. 

As a permanent insurance policy is written to cover 
the whole of life or the possible life-time of the in- 
sured (from age at issue to age 96) it may be paid 
for in one, three, seven, ten, fifteen, twenty, twenty- 
five or any number of payments the purchaser may 
select, or the payments may be paid yearly as long as 
the insured may live. 

The smaller the number of payments the insured is 



TWENTY PAYMENT LIFE POLICY. 163 

required to make, the larger will be the amount of 
each payment. 

The ten and fifteen payment whole life policies are 
issued on the same basis and the same conditions as 
the twenty payment policy. The ten payment requires 
a larger premium than the fifteen, the fifteen larger 
than the twenty and the twenty larger than the ordi- 
nary life. Therefore it will not require a detailed ex- 
planation of the ten and fifteen payment whole life 
policies. The ten and fifteen payment whole life poli- 
cies may be surrendered any year after the third and 
the actual insurance yet remaining in the death claim 
purchased at the attained age of the insured with- 
out financial loss, and where these forms of policies 
are surrendered and the actual insurance purchased 
on the whole life continuous premium plan a great 
saving will result in the cost of the insurance for the 
policy-holders. 

The prospective purchaser should ever remember 
that it is not good business prudence to purchase a 
$1,000 death claim or more to protect the beneficiary, 
and then at once proceed to pay off his own death 
claim any faster than is absolutely necessary. See 
article 284. 

There are also a great many ^* side-issues" attached 
to the ten and fifteen payment life forms which are 
as equally disastrous for the best financial interests 
of the insured and should not be purchased. 

As this chapter concludes the explanations of the 
different forms of policies the manner in which the 
death claim is sometimes paid to the beneficiary which 
is commonly called ^^ annuity or instalment policy'' 
will next be explained. 



.164 FALLACIES OR LIFE INSURANCE. 

CHAPTER XI 

ANNUITY OR INSTALMENT INSURANCE 

228. '* Annuity or Instalment Insurance." 

What is generally called ^^ annuity or instalment 
insurance'' is becoming very popular. In reality there 
is no such form of life insurance. It derives its name 
from the plan under which the beneficiary receives the 
benefits of an insurance policy. A general interpreta- 
tion of the word ^^ annuity insurance'' is, that the in- 
surance continues and is payable to the beneficiary in 
a specified number of instalments or for the whole of 
life of the beneficiary. This interpretation is NOT 
correct, as the actual insurance remaining in any death 
claim matures and becomes payable upon the death 
of the insured. 

229. May Be Applied to Any Form of Policy. 

The annuity or instalment plan under which the 
beneficiary is to receive the benefits of a death claim 
may be applied to the term, the whole life continuous 
premium, or any form of whole life limited premium 
or any form of the so-called eiidowment or investment 
insurance, with this exception, that when applied to 
the endoT^mient or investment form of policy the in- 
sured may receive the proceeds of the cash value of 
the policy as an annuity or on instalments for a speci- 
fied number of years or for the whole of life. 

230. Insurance Terminates Upon the Death of the 

Insured. 

The insured should ever bear in mind that the ac- 
tual insurance element of a life insurance policy ma- 
tures and becomes payable, together with the self- 



ANNUITY OR INSTALMENT POLICY. 165 

insurance fund upon the death of the insured. Any 
time there is no actual insurance remaining in a death 
claim, whether matured by death or by the self-insur- 
ance fund, the death claim becomes payable. 

231. Annuity Plan for Paying Death Claim. 

"When an annuity or instalment policy is purchased 
the insured simply elects that the death claim be paid 
to the company and that the company pay to the bene- 
ficiary the amount of the death claim and the inter- 
est increments in a specified number of instalments, 
or instalments extending over the life-time of the bene- 
ficiary. These policies are now written containing a 
clause under which the beneficiary is prohibited from 
commuting, and receiving in one sum, the amount of 
the death claim. 

The annuity or instalment plan for the payment 
of a death claim is adopted by the insured to relieve 
the beneficiary from the trouble of having to invest 
the death claim and also to provide a yearly income 
certain for the beneficiary for a specified number of 
years or for the whole of life. 

Most all forms of policies contain a table stating 
the amount of each annual annuity or instalment that 
will be paid for a specified number of years or for 
the whole of life for each $1,000 of death claim and 
where the policy does not contain this table the com- 
pany will adopt the annuity or instalment plan of 
settlement upon the request by the insured and this 
will be done without extra charge. 

Where the annuity tables are printed in the policy 
the explanation which accompanies them is generally 
very explicit. As these tables are calculated on the 
basis of a $1,000 death claim the amounts to be paid 
by the different companies are very near the same for 
an equal number of payments. The amount of the 
annual premium paid for the death claim has no bear- 
ing whatever on the amount of the annuity to be paid. 



166 FALLACIES OF LIFE INSURANCE. 

232. Annuity Plan May Be Applied to All Policy 

Forms. 

At age 35 a $1,000 death claim issued on the twenty- 
year term plan for an average non-participating prem- 
ium of $14.25 will pay the same amount of an an- 
nuity for the same specified number of payments as 
were the policy issued on the whole life continuous 
premium plan or the whole life limited payment plan 
or the high-priced endowment where an average 
premium of $50.63 is charged. 

233. Illustration. 

In order to illustrate the payment of a death claim 
by instalments a $1,000 death claim paid to the com- 
pany to be distributed will be used as a basis. "Where 
a specified number of equal instalments are to be paid 
the number may be placed at from two to fifty. Where 
the $1,000 is to be returned to the beneficiary by the 
company together with its interest worth, where the 
payments are extended over a period of 20 years, the 
total amount the beneficiary will receive will be in 
excess of the amount received where the payments are 
to be made in ten years, but the amount of each in- 
stalment will be less. 

For example, where the company operating on a 3 
per cent basis distributes a $1,000 death claim to the 
beneficiary in 20 equal annual instalments of $65.25 
the total amount the beneficiary will receive in 20 
years will be $1,305. Where the $1,000 death claim 
is distributed by the same company in ten equal an- 
nual instalments of $113.75, the beneficiary will re- 
ceive $1,137.50 during the ten years. The difference 
in the total amounts of $167.50 represents the excess 
interest the company was able to earn on the money 
held by it for 20 years instead of ten. 



ANNUITY OR INSTALMENT POLICY. 167 

234. 3J Per Cent Basis Pays Greater Annuity Than 

3 Per Cent. 

Any company operating on a 3^ per cent basis 
where any death claim is payable as an annuity the 
total amount the beneficiary will receive in an equal 
number of years will be in excess of the amount re- 
ceived where the company is operating on a 3 per cent 
basis. The following amounts are very near the amount 
of annuities that will be paid in the years specified. 

A company operating on a 3 per cent basis will pay 
ten instalments of $113.75 totaling $1,137.50, fifteen in- 
stalments of $81.25 totaling $1,218.75, twenty instal- 
ments of $65.25 totaling $1,305. A company operat- 
ing on the 3^ per cent basis will pay ten instalments 
of $116 totaling $1,160, fifteen instalments of $84 total- 
ing $1,260, twenty instalments of $68 totaling $1,360. 

"Where an increased number of annual instalments 
are paid, a corresponding increase will occur in the 
total amount to be received by the beneficiary on ac- 
count of the interest to be earned where a portion 
of the money is held by the company, but the amount 
of each instalment will be smaller. 

235. Annuities May Be Paid to One or More Bene- 

ficiaries. 

Where a specified number of payments are to be 
made, should the stipulated beneficiary die before all 
of the specified number of payments are made, the 
remaining unpaid instalments may be paid to some 
other beneficiary, as agreed upon between the com- 
pany and the insured, or where there is no other bene- 
ficiary specified, the balance of the unpaid instalments 
will revert to the insured's estate. By adopting this 
plan the insured is enabled to provide a positive in- 
come for his beneficiary, and in a way that the pro- 
ceeds of the premiums paid will be certain to go t^ 
his beneficiaries or estate after his death. 



168 FALLACIES OF LIFE INSURANCE. 

236. Limited Annuity Plan. 

Where the limited payment plan is adopted as above 
the specified number of payments will actually be 
paid by the company. 

237. Continuous Annuity Plan. 

Where the insured desires to provide for the pay- 
ment of the annuity or the instalments for the life- 
time of the beneficiary, after the death of the insured, 
or for twenty instalments certain and as many years 
as the beneficiary may live beyond the payment of the 
specified instalments, the basis used in calculating the 
amounts to be paid is a little different than where 
a specified number of instalments are to be paid. Un- 
der this plan the $1,000 death claim is paid to the 
company (the same as under the limited payment 
plan), but the company only takes a part of the $1,000 
death claim to pay the twenty payments certain and 
the balance of the $1,000 death claim is used to pay 
additional instalments of equal amount during the life- 
time of the beneficiary after the payment of the twenty 
annual instalments. This plan is called the '^contin- 
uous annuity or instalment plan," as it provides for 
the payment of an equal annual instalment for the 
life-time of the designated beneficiary. The ainount 
the company will pay annually under this plan will 
be governed by the age of the beneficiary at the time, 
the death of the insured occurs. The older the bene- 
ficiary at the death of the insured, the greater will be 
the amount of the instalments to be paid. 

The following average amounts will be paid for each 
$1,000 death claim according to the age of the bene- 
ficiary at the death of the insured or at the beginning 
of the payment of the instalments. 

A company operating on a 3 per cent basis will pay 
at age 20, $41; age 30, $44; age 40, $49; age 50, $56; 
age 60, $62; age 70, $65. A company operating on a 



ANNUITY OR INSTALMENT POLICY. 169 

3^ per cent basis will pay at age 20, $45 ; age 30, $48 ; 
age 40, $53; age 50, $60; age 60 and over, $66. 

238. Age of Beneficiary Considered. 

Sometimes the age of the beneficiary is considered 
at the time the insured purchases the policy where 
the death claim is to be paid to the beneficiary in 
equal annual instalments for the life-time of the bene- 
ficiary, i. e., the premiums paid are only sufficient to 
purchase a death claim upon the death of the insured, 
which will take years of interest accumulations to 
equal a death claim of $1,000, thereby purchasing an 
annuity to begin twenty years after the death of the 
insured, and by so doing the first twenty instalments 
certain are purchased and also an annuity, without 
knowing whether it is possible for the beneficiary to 
live to receive such annuity. 

Under this plan should the beneficiary die before 
the insured or before the twenty instalments certain 
had been paid all money paid for the annuity, to be 
paid after the twenty payments, would be lost. The 
first twenty instalments will be paid by the company 
and the actual death claim pays for such instalments, 
the annuity not beginning until twenty years after 
the death of the insured. 

239. Beneficiary Should Purchase Annuity. 

A better plan would be to purchase more insurance 
with the money to be paid for such annuity, the bene- 
ficiary being required to purchase, upon the death of 
the insured, the first twenty instalments and the annu- 
ities with the greater death claim money, and under 
this plan should the first named beneficiary die before 
the insured, the benefits can be transferred to some 
other beneficiary, or the policy can be surrendered for 
its cash value without the loss of the money paid for 
annuities. 



170 FALLACIES OF LIFE INSURANCE. 

240. Excessive Premiums Sometimes Paid. 

"Where the insured purchases an annuity or instal- 
ment policy, it is not unusual to find that too high 
premiums are being paid for the same. A $10,000 
death claim purchased on the ordinary life non-partic- 
ipating plan at age 35 for the average annual premium 
of $222 provides for the payment of $10,000 in one 
sum, upon the death of the insured, or the insured 
may elect to have it paid to the beneficiary in twenty 
equal annual instalments of $652.50 each, or a total of 
$13,050 in twenty years. This plan will produce an 
interest earning of $3,050. On the same basis it would 
only take $7,662.50 insurance, payable in twenty an- 
nual instalments of $500, to produce $10,000 at the 
end of twenty years. Apparently the policies are each 
written for $10,000. The first policy is actually writ- 
ten for $10,000 and the beneficiary will receive $10,000 
with interest increments, while the second policy of 
$10,000 written on the instalment plan for $10,000 
payable in twenty annual instalments of $500 may be 
written for a smaller premium, and the insured who 
purchases a $10,000 instalment policy may feel that he 
is securing his insurance at a smaller cost, yet he may 
be paying a very high premium for the same, not 
taking into consideration the fact that the $10,000 in- 
stalment policy will not produce $10,000 before the 
end of twenty years. 

241. A Fair and Equitable Premium. 

"Where an instalment policy is purchased at age 35 
on the non-participating plan, which provides for the 
payment of $500 per year for twenty years, on the 
ordinary life plan $163.17 per year is a fair and equita- 
ble premium to be paid for the same. 

The insured is justified in purchasing a death claim 
payable in monthly or annual instalments, providing 
the instalments are purchased by the beneficiary with 
the proceeds of the death claim, and if only twenty 



ANNUITY OR INSTALMENT POLICY. 171 

instalments are desired instead of the continuous in- 
stalments, then the insured would be justified in pur- 
chasing $735 of insurance for each $50 yearly instal- 
ment desired for twenty years, on the ordinary life 
non-participating plan for the average annual premium 
of $16.31, the policy providing that the death claim 
shall be paid in twenty annual instalments. 

Life insurance should be purchased for protection, 
as this is the only real benefit to be derived from any 
form of a life insurance policy. As the public is edu- 
cated to believe that legitimate ^^investments'' may 
be secured by purchasing certain forms of ^invest- 
ment life insurance policies," the ^'investment" fea- 
ture of life insurance will be explained under the 
Summary, as several different forms of policies are 
sold which purport to afford an investment for the 
purchaser. 



172 FALLACIES OP LIFE INSURANCE. 



CHAPTER XII 

SUMMARY 

The information and illustrations given in the fore- 
going pages should explain the principles of life in- 
surance as applied to the several different forms of 
policies from the policy-holders' standpoint. 

242. General Information. 

Under Chapter III will be found information as ap- 
plied to life insurance in a general way. This in- 
formation applies to all of the different forms of poli- 
cies and by placing this information in a separate 
chapter repetition is avoided under the several forms 
of policies. 

243. Cost as Applied to the Company and Insured. 

Under Chapter IV will be found an explanation of 
the principles as applied to determining the net cost 
of insurance not only to the company, but to the in- 
sured. An explanation will also be found under this 
chapter of the ''dividend'' element of the premiums 
to be paid by the insured. 

244. One Year Term Used as a Basis. 

Under Chapter V an explanation of the one year 
term policy explaining the net cost to the company 
for a $1,000 death claim for each year of the insured 
which is the basis for calculating the cost of the actual 
insurance in the death claim on all forms of policies. 

Under the following chapters will be found explana- 
tions and illustrations showing the advantages and 
disadvantages to the insured under each separate form. 

There are several other very important matters per- 



SUMMARY. 173 

taining to the purchase of life insurance which must 
be treated under a general explanation, as they do not 
apply to all forms of policies. 

245. ''Investment Item.'' 

The principle of ''investment'' has been applied to 
some forms of life insurance policies and as the author 
has endeavored to explain the favorable and the un- 
favorable forms of policies and instruct the reader 
how to select the form of policy which will render 
the greatest benefits (protection) to be derived from 
a life insurance policy for the smalj:est net cost to 
the insured, the feature of "investment" should be 
explained in order that the reader may be able to se- 
lect the form of policy which will render the greatest 
"investment" returns under a life insurance policy at 
the smallest net cost. 

The death claim payable under a life insurance pol- 
icy should be considered the only "investment" for 
the insured and the greatest "investment" will be 
realized where the smallest premiums are paid. 

As the death claim is wholly in the interest of the 
beneficiary and only payable upon the death of the 
insured, the term "investment" when applied to a 
life insurance policy is represented by the money which 
the insured may receive after a specified number of 
years upon the surrender of the policy. 

246. Life Insurance Affords Protection Only. 

Life insurance was primarily established to afford 
protection and where protection is needed, it is most 
generally needed for an extended period of time, and 
where "investment" is purchased it is generally ex- 
pected that the "investment" should mature in a short 
period of time in order for the purchaser to realize 
the benefits of his "investment." Therefore when 
the "investment" features were applied to a life in- 
surance policy it would seem that a great mistake 



174 FALLACIES OF LIFE INSURANCE. 

had been made, as their basic principles are in direct 
opposition. 

247. The Dividing Line. 

As some policies are written for protection alone 
and some policies are written for protection and *^ in- 
vestment'' it becomes necessary to establish a dividing 
line. 

248. Temporary Insurance. 

The term insurance is purchased for protection alone 
and term policies generally have no cash surrender 
values, the premiums paid being only sufficient to 
pay the expected mortality expense and a small con- 
tribution for managing expenses for the number of 
years the policy is written to cover, and is therefore 
designated as temporary insurance. By adding a small 
amount to the gross premium the term policies may 
be changed to permanent insurance by being made 
renewable without medical examination. 

249. Permanent Insurance. 

The whole life continuous premium policy being per- 
manent insurance is written to cover the possible life- 
time of the insured. In order that the insured may be 
able to pay a level premium for a large number of 
years or the whole of life, the insured must pay to 
the company during the earlier years of the policy 
money in excess of the actual cost of the insurance to 
create the reserve or self-insurance fund. 

250. Ordinary Life Form not Really an Investment. 

While the insured can withdraw this excess money 
any year the policy may be surrendered after the 
third, the whole life continuous premium policy can- 
not be considered an ^'investment policy," as the cash 
the insured is able to withdraw upon surrender of the 
policy was not paid to the company to secure an 



SUMMARY. 175 

''investment/' but simply to enable the insured to se- 
cure permanent insurance at a level yearly premium, 
therefore the term policy will be taken as a basis for 
temporary or short time 'investments" and the whole 
life continuous premium as the permanent insurance 
basis. 

251. Non-Participating Rate Used for Illustration. 

As most forms of ''investment'' policies are written 
to cover twenty years, the twenty-year period will be 
adopted as a basis for the following illustration. As 
the "dividend" element of the premium or the over- 
charge m^ade to enable the company to pay annual 
or deferred "dividends" cannot be considered legiti- 
mate "dividends" or returns on an "investment," the 
average non-participating premiums for age 35 on a 
3^ per cent basis will be used. 

Where a term policy is written to cover a period 
of twenty years the average level annual premium re- 
quired for each $1,000 death claim is $14.25 for age 
35. The $14.25 is all the premium that is required to 
pay the insured's share of mortality and managing 
expenses for the 20 years and any money paid to the 
company in excess of this amount must be paid for 
"investment." 

Where the policy is written to cover the whole of 
life the average level annual premium required for 
each $1,000 death claim is $22.20 for age 35, this being 
the premium required to pay mortality and managing 
expenses and create the reserve or self-insurance fund, 
and any money paid in excess of this amount must 
be paid for "investment." 

The 20-year term plan affords the greatest amount 
of protection at the smallest net cost to the insured 
for 20 years. The whole life continuous premium pol- 
icy affords the greatest amount of protection for the 
whole of life at the smallest net cost to the insured. 
Therefore these two forms of policies are the best in- 



axe FALLACIES OF LIFE INSURANCE. 

vestment for the insured considering the beneficiary's 
interests. The value of an ''investment" is based on 
the ''dividends'' or profit received considering the 
chances of losing the original "investment." In order 
that we may determine the best investment for the in- 
sured the following illustration will be used. 

252. "Investment" Illustrated. 

Let us suppose that "A" purchases four $1,000 death 
claims at age 35. He purchases number one on the 
twenty-year term plan, annual premium $14.25. He 
purchases number 2 on the ordinary life plan, annual 
premium $22.20. He purchases number 3 on the 20 
payment life plan, annual premium $30.10. He pur- 
chases number 4 on the 20 year endowment plan, an- 
nual premium $44.50. 

The premium to be paid on any form of a life in- 
surance policy must first contain the elements of mor- 
tality and managing expenses. As the premium re- 
quired on the term policy only provides for these ele- 
ments, the premium of $14.25 will be taken as a basis. 
$14.25 of any of the above premiums is consumed to 
pay for the protection afforded in the policy and the 
term policy has no cash surrender value the tw^en- 
tieth year, therefore none of this amount can be re- 
turned on any of the above policies. As all of the 
other three policies have cash surrender values they 
will be considered in this illustration as "investment 
policies." 

By increasing the term rate of $14.25 to $22.20, the 
premium required for the ordinary life policy, $7.95 
may be considered the "investment" element of the 
premium. As the cash value of the term policy was 
nothing, the cash value of the ordinary life policy 
of $310.75 represents the total "investment" at the 
end of the 20th year. The statement of the account 
at the end of the ^Oth year is as follows : 



SUMMARY. 177 

$14.25 yearly for 20 years for the death claim. .$285.00 
$7.95 yearly for the ''investment" equals 159.00 

Total paid for insurance and ''investment". .$444.00 
Guaranteed cash value of policy at end 20th 

3^ear or the "investment" 310.75 

Total amount paid for "investment" 159.00 

"Profit" an "investment" for 20 years $151.75 

Average amount "invested" for 20 years 79.50 

Average yearly "profit" for one year 7.58 

Average percentage of "profit".. 9.5 

The above illustration shows that $7.95 invested 
yearly for 20 years gives a total "profit" of $151.75, 
or an average yearly "profit" on the "investment" 
, of 9.5 per cent, where the policy is surrendered. 

By increasing the term rate of $14.25 to $30.10, the 
premium required for the 20 payment life policy, the 
difference in the premiums of $15.85 represents the 
"investment" element of the premium. The follow- 
ing illustration will show the results on this plan the 
20th year : 

$14.25 yearly for 20 years for death claim $285.00 

$15.85 yearly for the "investment" equals.... 317.00 

Total paid for insurance and "investment". .$602.00 
Guaranteed cash value of policy at end of 20th 

year or the "investment" 566.15 

Total amount paid for "investment" 317.00 



"Profit" on "investment" for 20 years. $249.15 

Average amount "invested" for 20 years.... 158.50 

Average yearly "profit" for one year 12.45 

Average percentage of "profit" 7.8 

On the 20 payment life plan, where $15.85 was ''in- 
vested" for the whole 20 years, the "profit" for the 
whole 20 years was $249,15. Percentage of average 



178 FALLACIES OP LIFE INSURANCE. 

yearly ''profit'' 7.8 per cent, where the policy is sur- 
rendered. 

By increasing the term premium of $14.25 to $44.50 
the average premium for the 20 year endowment pol- 
icy, the difference in premiums of $30.25 represents 
the annual ''investment" under the 20 year endow- 
ment policy. The following illustration will show the 
results the 20th year on the 20 year endowment plan: 

$14.25 yearly for 20 years for death claim $285.00 

$30.25 yearly for the "investment" equals 605.00 



Total paid for insurance and "investment". .$890.00 

Guaranteed cash value of policy at end of 20th 

year or "investment" .1,000.00 

Total amount paid for "investment" 605.00 

"Profit" on "investment" for 20 years $395.00 

Average amount "invested" for 20 years..... 302.50 

Average yearly "profit" for one year 19.75 

Average percentage of "profit" 6.5 

On the 20 year endowment plan the difference in 
premiums of $30.25 "invested" yearly for the 20 years 
in addition to the premium of $14.25 gives a "profit" 
of $395. Percentage of average annual "profit" 6.5 
per cent. 

Thus it will be seen that where $30.25 is "invested" 
yearly on the endowment plan, or $14.40 more than 
on the 20 payment plan, the percentage of yearly 
"profit" is reduced from 7.8 per cent to 6.5 per cent 
and $15.85 is "invested" yearly on the 20 payment 
plan or $7.90 more than on the ordinary life plan the 
yearly percentage of "profit" is reduced from 9.5 per 
cent to 7.8 per cent and the more that is "invested" 
each year the greater is the self-insurance fund with 
corresponding reduction in the actual insurance con- 
tained in the death claim and a reduction of per- 
centage of yearly "profits." Do these illustrations 



SUMMARY. 179 

verify the statements made by the officers and agents 
of the insurance companies '^that the higher-priced 
forms of policies afford the best investment for the 
insured ? " 

253. A Better Plan for Investment. 

As ^^A'' was undoubtedly seeking an ^ ^ investment ^ ' 
when he purchased the 20 payment life and the en- 
dowment policies, and as the premiums paid on those 
policies in excess of the premium required for the or- 
dinary life policy of $30.20 did not purchase any addi- 
tional insurance or death claim and he surely did not 
pay to the company the $30.20 yearly for 20 years, 
just for the privilege of losing each payment made 
to date of demise should he die in the meantime, so 
he must have paid it to the company to secure an ^^in- 
vestment." 

Instead of paying this money to the company yearly 
with the understanding that ^^ should he die the com- 
pany was to keep each payment and its interest worth 
to date of demise, or should he survive the twenty 
years, the company would return the greater part of 
his savings or 'investment' ", how would this plan 
have appealed to him? 

As ^^A" had $111.05 yearly to pay for $4,000 of 
insurance, $30.20 of this amount to be paid to the com- 
pany for '^ investment," let us suppose that he had 
purchased $1,000 of the insurance on the twenty year 
term plan for $14.25 and $3,000 of the insurance on 
the ordinary life plan for an annual premium of $66.60 
and had invested the remaining $30.20 yearly in bonds 
or some other reliable securities paying at least five 
per cent. Should he have desired to surrender all of 
his insurance at the end of the twenty years his ac- 
count would have stood as follows : 



180 FALLACIES OP LIFE INSURANCE. * 

Cash value of term policy $ 000.00 

Cash value of $3,000 ordinary life policy 932.25 

Amount of $30.20 invested yearly at 5 per cent 1,047.54 

Total cash end of 20th year $1,979.79 

Where he 'invested'' the $30.20 yearly with the in- 
surance company his account was as follows: 

Cash value of term policy .$ 000.00 

Cash value of $1,000 ordinary life policy 310.75 

Cash value of $1,000 20 payment policy 566.15 

Cash value of $1,000 20 year endowment pol- 
icy 1,000.00 

Total cash end of 20th year .$1,876.90 

Total cash on ^ legitimate investment" plan. .$1,979.79 
Total cash on ''insurance investment" plan. . 1,876.90 



Excess cash by purchasing ''legitimate in- 
vestment" . . .$ 102.89 

The excess cash of $102.89 only represents the excess 
"profit" to be gained by investing in "legitimate in- 
vestments" where "A" lives to the end of the 20th 
year. Let us suppose that "A" should have died any 
time during the 20 years, what would have been the re- 
sults? 

Should "A's" death have occurred the first year or 
any year during the twenty, under the first plan of 
"investment" he would have left an insurance estate 
of $4,000. Should he have died the first year under 
the second plan of "investment" he would have left 
an estate of $4,000, the same as under the first plan 
and in addition thereto a cash estate of $30.20. Had 
"A's" death occurred the 20th year he would have 
left an insurance estate of $4,000 and in addition there- 
to a cash estate of $1,047.54 (investment of $30.20 
yearly and its interest worth) or a total of $5,047.54 
instead of $4,000 under the first plan of "investment." 



SUMMARY. 181 

The excess cash estate the first year of $30.20, plus 
the cash estate of $1,047.54 the 20th year, would give 
an average excess estate of $538.87 for the whole 20 
years. 

Had ^^A" adopted the second plan of ^ investment " 
and become financially embarrassed at the end of the 
fifteenth year and been unable to pay the full premium 
for ^ investment" and insurance of $111.05 he could 
have stopped the ''investment" part of his premium 
of $30.20 without reducing the $4,000 insurance es- 
tate. . His ''investment" at the end of the fifteenth 
year would have amounted to $684.33 and the inter- 
est on this amount would reduce the premium of $80.85 
required for the $4,000 insurance to $46.64. 

Should it be worth more than 5 per cent to "A" 
to have the use of the $684.33 to use in his business, 
"A" could have the use of this amount without re- 
ducing the $4,000 death claim. 

Under the first plan of "investment" should "A" 
be compelled to secure $684.33, the amount of his 
"investment" from the insurance company, the com- 
*pany would charge him at least 5 per cent for the use 
of his own money and should his death occur before 
the amount secured was repaid to the company this 
amount would be deducted from the $4,000 death 
claim. 

"A" should also not lose sight of the fact that 
under the high-priced endowment policy, the insurance 
actually expires at the end of the twentieth year, as 
the self-insurance fund or his own cash left with the 
company equals $1,000 at that time. 

Supposing "A's" health had become impaired by 
accident or sickness in the latter part of the endow- 
ment period, had he purchased the $1,000 death claim 
on the ordinary life plan instead of the endowment, 
the same would have been continued in force until 
matured by death, and should "A's" death occur the 
third year after the endowment had expired, the ae- 



182 FALLACIES OF LIFE INSURANCE. 

tual insurance remaining in the $1,000 death claim 
nnder the ordinary life plan would be $631.68. As 
this amount would have been lost under the endow- 
ment plan, $631.68 might be considered a pretty fair 
''profit'' to be realized upon the payment of three 
premiums of $22.20 each. 

254. High-Priced Policies Do Not Afford Legitimate 
Investments. 

The high-priced policies, which force the actual in- 
surance from the death claim by the excess accumu- 
lated self-insurance fund, should never be purchased. 
Where protection is desired it should be purchased 
at the smallest net cost to the insured, as this will 
afford the greatest and the only investment to be de- 
rived from any form of a life insurance policy. Where 
protection and investment is desired, the protection 
should also be purchased at the smallest net cost to 
the insured and the investment should NOT be pur- 
chased from an insurance company where the invest- 
ment will be lost in case of death of the insured. 
Where investment alone is desired it CANNOT be pur- 
chased on a ''profitable" basis to the insured from 
a life insurance company, because the insured must 
at least pay the mortality and managing expense un- 
der any form of a life insurance policy in order to 
secure the same, and where protection is not needed, 
any money paid to the company for the same is a 
total loss to the insured. For example : where a 
$1,000 endowment policy is purchased, in order to 
secure an investment alone, for the average annual 
premium of $44.50, $14.25 of each premium is con- 
sumed by the company to pay mortality and ntanag- 
ing expenses and where the insured has no one to 
protect this amount is a total loss. How would it be 
possible for a life insurance company to earn suffi- 
cient money on the remaining $30.25, paid to it for 
''investment," to be able to return to the insured the 



SUMMARY. 183 

$14.25 squandered for mortality and managing ex- 
penses and pay a ^^ profitable dividend" on an invest- 
ment of $44.50? 

Where a legitimate investment is purchased each 
dollar invested should return an equal amount of profit 
where the investment is purchased in the same com- 
pany. If a life insurance company actually furnishes 
a true and legitimate investment, how is it that a life 
insurance company can earn more with $10 paid to it 
where a 20 payment life policy is purchased for * in- 
vestment," than it can with $10 paid to it for an 
endowment policy purchased for investment, or vice 
versa? Each policy can be terminated at the end of 
20 years. Where the insured purchases the two poli- 
cies at the same time the mortality and managing ex- 
penses SHOULD be the same for 20 years. If they are 
not the same why should they be purchased? 

The insured is only required to pay the mortality 
expense each year as long as his policy remains in 
force. The insured is required to pay his share of 
the mortality expense for each $1,000 death claim 
whether the death claim is purchased on the 20 pay- 
ment life plan or the endowment plan. Should it cost 
the company more to carry a $1,000 death claim on 
the same person where it is purchased on the 20 pay- 
ment life plan or on the endowment or any other 
form of policy, or vice versa? If the insured pays 
to the company more than his proportionate share of 
managing expenses while his policy is in force, under 
one form, of policy than another, should not this dif- 
ference be returned to the insured should he surrender 
the policies? If not, why? 

The above illustrations clearly show that any money 
the insured is to receive from the company as an ^^in- 
vestment" is simply the return of the insured's own 
money. If he is to receive '^dividends" on his policy 
he must pay additional money to be returned at some 
future time as ^*' dividends." 



184 FALLACIES OF LIFE INSURANCE. ^ 

255. Deferred Dividends Not Popular. 

On account of certain states passing laws prohibit- 
ing the companies from holding this excess money 
paid to the company, to be returned after many years 
as ''deferred dividends/' the policy-holders in gen- 
eral object to the companies deferring this excess 
money paid to be returned as ''dividends" after many 
years and require the policy to be so written that the 
"dividends" may be received by the insured annu- 
ally. This is done because the policy-holders have 
learned enough about insurance to know that should 
the death of the insured occur before the overcharge 
is returned it will be lost to the insured's estate. 

256. Why Should Deferred Investment Policies Be 

Purchased? 

If the insured will not permit the company to v/itb- 
hold the overcharge paid for "dividends" for many 
years, why should he permit the company to withhold 
the overcharge made for extra reserve (self -insurance 
fund) or investment? The overcharge made for extra 
reserve (self-insurance fund) or investment will be 
lost to the insured's estate should death occur before 
the "investment" is paid to the insured the same as 
the "deferred dividends." This is done probably be- 
cause the insured does not know what he is doing 
when the high-priced "investment policies" are pur- 
chased. 

257. Illustration. 

For example, "A" purchases a $1,000 death claim 
on the non-participating ordinary life plan 3^ per 
cent basis, for the average annual premium of $22 .20 
for age 35. "A" is warranted in paying the differ- 
ence of $7.95 in the premium on the temporary 20 year 
term plan of $14.25 and the premium of $22.20 on 
the ordinary life plan in order to secure permanent 
insurance. If he wishes to surrender the ordinary life 



SUMMARY. 185 

policy at the end of 20 years he can do so and the cash 
value of the policy will reduce the cost for the 20 
years below that of the term policy. Therefore the 
$7.95 may be considered a good investment. 

^^A'' also purchases a $1,000 death claim on the 20 
payment life participating plan, average annual prem- 
ium $36.20, for age 35 on the 3^ per cent basis. He 
pays the difference in premium of $14, that about $6 
may be returned as ^^ dividends" and $8 to be held 
by the company as reserve. ''A" will not permit the 
company to withhold the $6, paid to it yearly for 
^^ dividends,'' until the end of the 20th year, as would 
be done were the policy written on the deferred divi- 
dend plan, because he has learned that each payment 
of $6 and its interest worth made to the company to 
date of demise, would be lost to his estate should 
death occur in the 20 years. He does not enter any 
protest whatever against the company withholding 
the $8 paid to it yearly for excess reserve. What 
benefit will ^'A" receive for the $8 paid annually 
should his death occur during the 20 years? 

The $22.20 paid to the company yearly on the ordi- 
nary life plan is all that is required to pay his share 
of mortality and managing expenses, from year to 
year, on a permanent insurance death claim and create 
the reserve or self-insurance fund of $1,000 at age 
96, thus enabling him to pay a level or equal premium 
each year, and the company will pay $1,000 to the 
beneficiary under the ordinary life policy the same as 
the 20 payment policy. 

The $6 is paid to the company yearly to accumulate 
some cash that the insured may have the privilege of 
withdrawing at the end of the 20th year providing he 
lives. The $8 is simply paid to the company yearly 
in order to create a reserve or self-insurance fund 
equal to the single premium required for a $1,000 
death claim at age 55, which ''A" may have the priv- 
ilege of withdrawing at th^j end of 20 years, or turn- 



186 FALLACIES OP LIFE INSURANCE. 

ing the same over to the company to purchase a single 
premium death claim of $1,000 providing he lives. If 
one of these plans are bad the two must certainly be 
worse. Should ''A's" death occur in the 20 years the 
company will take the extra accumulated reserve, add 
it to the reserve already accumulated on the ordinary 
life policy, take the balance from the mortality ex- 
pense fund and pay the death claim. 

^'A'' feels very proud to think that he has ^ ^fooled" 
the company out of the accumulated ''dividends'' by 
withdrawing the same annually. The company will 
allow ''A'' to withdraw this overcharge annually with- 
out deducting the amount withdrawn from the death 
claim in case of death, but if he withdrew the $8 paid 
for excess reserve, the company would charge him 
5 per cent interest for the same and deduct the amount 
so withdrawn from the death claim in case of death. 
"Why should this be done? ''A'' would not have been 
''robbing" or taking advantage of the company had 
he purchased both $1,000 death claims on the ordinary 
life plan. If the company can pay a $1,000 death 
claim for the $22.20 paid to it to date of demise, with- 
out going bankrupt, why should it require the same 
person to pay $8 extra yearly to date of demise on 
another form of policy issued at the same time the 
ordinary life policy was issued? 

Should "A" live and wish to surrender the 20 pay- 
ment policy any year, the company will return the $8 
and its interest increments in addition to the accumu- 
lated reserve on the ordinary life policy any year, 
generally after the third. "Why should not this $8 
and interest increments be returned in addition to 
the death claim should "A" die during the 20 years? 
258. Some Injustices Finally Discovered. 

Certain states have passed laws protecting ^'A" 
against the loss of this $6, paid to the company for 
"dividends," but the states have failed, so far, to 
enact laws which would protect "A" against the loss 



SUMMARY. 187 

of his $8 paid to the company yearly for reserve. Per- 
haps the reason that these laws have not been passed 
is because the legislators, who have the power to enact 
laws to protect the citizens of the state, do not know 
that these injustices are being practiced by the insur- 
ance companies. 

After many years and after many millions of dol- 
lars had been lost by policy-holders, the legislators of 
some states finally discovered the injustice of withhold- 
ing the ''dividends" and immediately passed laws to 
prohibit the same. Let us hope that at some time in 
the future after more millions will have been lost to 
the policy-holders the other injustices practiced by the 
life insurance companies may be discovered and laws 
enacted to prohibit them. 

The laws we now have protect the policy-holders in 
part. "Why not enact laws which will fully protect 
them? 

259. ''A'' May Protect Himself. 

''A'' has two ways to protect himself against the 
loss of his deferred ''dividends,'' first, withdraw the 
"dividends'' annually; second, purchase his insurance 
on the non-participating plan and not pay the $6 to 
the company yearly to be returned as "dividends." 
As the company will not return the $8 annually, with- 
out the payment of 5 per cent interest to the com- 
pany for the use of the same, and also without de- 
ducting the amount withdrawn from the death claim 
should death occur, thereby reducing the same, the 
only plan left for "A" to adopt to secure the $8 paid 
as excess reserve without financial loss unless he waits 
until the end of the 20th year to withdraw the same, 
is to purchase his insurance on the ordinary life plan 
and not pay the $8 annually to the company until it 
WILL purchase him something. 

260. Illustration. 

Let us suppose that instead of purchasing the $1,000 



188 FALLACIES OF LIFE INSURANCE. 



death claim on the 20 payment life plan he had pur- 
chased it on the ordinary life plan and instead of pay- 
ing the $8 annually to the company he had invested 
the same in his business or placed it with his other 
money invested in securities, thereby earning a divi- 
dend of at least 5 per cent. The results would have 
been as follows : 

Eight dollars yearly in advance invested at five per 
cent interest would amount to $277.76 at the end oP 
20 years. Had ^^A" decided after 20 years, or when 
he had attained the age of 55, to purchase a single 
premium policy or a '^paid-up" policy, the same as 
he would have had under the 20 payment policy, all 
that will be required of him by the company is, that 
he pay the difference between the reserve already ac- 
cumulated on the ordinary life policy, $310.75, a'nd 
the single premium of $566.15, which is $255.40. The 
$277.76 accumulated from the investment of $8 yearly 
would pay this amount and leave a balance of $22.36 
and by investing the $8 yearly in this manner ^^A" 
would not have jeopardized the same to loss by death 
during the 20 years. 

Should he wish to surrender the ordinary life policy 
at the end of the 20th year its cash value of $310.75, 
plus the savings and their interest worth of $277.76, 
would give $588.51 total cash, instead of $566.15 un- 
der the 20 payment plan, or an excess of $22.36 should 
he surrender the policy. 

Had his death occurred the first year he would have 
left an insurance estate of $1,000 plus the $8 saved 
for investment, or a total of $1,008. Should he have 
died the 20th year he would have left a $1,000 insur- 
ance estate plus the investment of $277.76 (which the 
company did not get) or a total of $1,277.76, or an 
average excess estate of $142.88, for the whole 20 
years. 

261. Why Should a *Taid-Up'' Policy Be Purchased? 

Why should ^^A" desire to pay to the company at 



SUMMARY. 189 

age 55 $566.15 for a '^paid-up" policy? That would 
pay all of ^^A's" share of the mortality and manag- 
ing expenses for the next 41 years and create a self- 
insurance fund of $1,000 at the end of the 41 years, 
or at age 96. Should '^A" die in the next ten or 
fifteen years that would be a pretty heavy premium to 
pay for a $1,000 death claim. 

Had he continued the ordinary life policy he would 
only be required to pay the $22.20 yearly for the $1,000 
death claim; $566.15 would be a lot of money to pay 
to the company just to be relieved of the trouble of 
having to send the company $22.20 yearly as long as 
he lived, maybe only two or three years. Had he not 
disturbed the investment of $277.76, the interest there- 
on of $13.88 would only lack $8.32 of paying the 
premium on the ordinary life policy and upon his 
death he would have left an estate of $1,277.76 in- 
stead of $1,000 under the ^^ paid-up policy" plan and 
the cash value or self-insurance fund of the ordinary 
life policy would have been increasing each year and 
had he lived to age 96 he would have had the $1,000 
self-insurance fund, together with his investment of 
$277.76, or a total of $1,277.76 cash, instead of $1,000 
cash under the 20 payment plan. 

262. *^B" Purchases an '^ Investment.'' 

Let us suppose that ^^B" at age 35 wanted to pur- 
chase a good '^substantial and profitable'' investment 
and having heard so much about life insurance com- 
panies offering substantial '' investments" paying such 
''profitable dividends," he would purchase a $1,000 
"investment" on the 20-year endowment plan. He 
would not purchase it on the participating plan, but 
had paid $44.50 for the non-participating "invest- 
ment," because he had learned that there was no real 
"profit" in the dividend paying policies. He wanted 
to leave $1,000 insurance for his wife and family and 
he also wanted $1,000 for himself at the end of 20 



190 FALLACIES OF LIFE INSURANCE. 

years. The following illustration will show whether 
he selected the proper plan for securing what he most 
desired or not, namely, protection and ^ investment. " 

263. Illustration. 

If ''A" was not justified in paying $8 for the 20 
payment policy in addition to the premium of $22.20 
required for the ordinary life policy for ''investment," 
why would ''B" be justified in paying $22.30 for * 'in- 
vestment." Had he purchased the protection he de- 
sired under the ordinary life plan for $22.20 and in- 
vested the difference in premium of $22.30 yearly for 
20 years at 5 per cent, the accumulated value of his 
investment at the end of the 20th year would have 
been $774.25 ; and should he have died in the mean- 
time the ordinary life policy would have furnished 
the protection of $1,000. 

Should he not need the $1,000 protection after 20 
years he could surrender the ordinary life policy for 
its cash value of $310.75. This amount added to his 
savings of $774.25 would give a total of $1,085 in- 
stead of $1,000 under the endowment plan. 

Let us suppose that "B" should die during the 20 
years. He must have thought there was some chance 
of his dying or he would not have purchased the pro- 
tection. Had he died the first year he would have left 
an insurance estate of $1,000, plus the "investment" 
of $22.30 or a total of $1,022.30. Should he have died 
the 20th year he would have left an insurance estate 
of $1,000 and a cash estate of $774.25, or a total of 
$1,774.25, instead of $1,000 under the endowment plan, 
or an average excess estate for the whole 20 years 
of $398.27. 

Had "B" at the end of 20 years desired to continue 
the $1,000 death claim under the ordinary life plan, 
the interest on the investment of $774.25 would pay 
the annual premium of $22.20 and leave an excess 



SUMMARY. 191 

of $16.51 annually for life and upon his death he 
would have left an estate of $1,774.25. 

Under the endowment plan, if ^'B" was going to 
live for 20 years in order to receive the endowment 
of $1,000 he would certainly be very foolish to squan- 
der $14.25 yearly for protection. Had he invested the 
$44.50 yearly at 5 per cent at the end of 20 years 
he would have had $1,545.04, instead of $1,000 under 
his ^^ endowment investment.'' 

If he is going to die in the 20 years in order for 
his beneficiary to receive the protection ^^B" would 
be equally as foolish to pay money for an endowment 
that he was going to die and lose. 

Let us suppose that ^^A" after purchasing a $1,000 
death claim on the ordinary life plan for $22.20, had 
died the first year. He would have left for his bene- 
ficiary $977.80 more than he had paid the company. 
Had ^^B" died the first year after having purchased 
his $1,000 death claim on the endowment plan for 
$44.50 he would only have $955.50 more for his bene- 
ficiary than he had paid the company. Now why 
should ^^B" be required to pay $44.50 for the same 
identical benefits that ^^A" purchased for $22.20? 
Supposing that ^^C" should purchase a $1,000 death 
claim and ^^ investment" on the 10-year endowment 
plan for the average annual premium of $104.22 and 
had died the first year. He would only have left for 
his beneficiary $895.78 more than he had paid the com- 
pany. Is there any plausible excuse to offer why ^^C" 
should pay $104.22 for the same thing that ''A" pur- 
chased for $22.20? 

Let us go a little farther with the alleged ^'invest- 
ment" proposition as offered by the life insurance com- 
panies. Let us still assume that money is worth at 
least 5 per cent. 

Had ''A" paid 20 annual premiums of $22.20 and 
died in the latter part of the 20th year his $1,000 
death claim would have cost him $770.78, therefore his 



192 FALLACIES OP LIFE INSURANCE. 

estate would have received a ^'profit'' from the com- 
pany of $229.22. Had ^^B" paid $44.50 for 20 years 
and died in the latter part of the 20th year his $1,000 
death claim wonld have cost him $1,545.04, therefore 
his estate would have LOST $545.04. Had ^^0" paid 
10 annual premiums of $104.22 and died in the latter 
part of the 10th year his $1,000 death claim would 
have cost him $1,376.74, therefore his estate would have 
lost $376.74. Does it not seem to the reader that there 
is something wrong with the SYSTEM as it is now 
operated? 

264. Life Insurance Companies Are Poor Savings 

Banks. 

Are not the above illustrations enough to convince 
the reader that the ^^ investment policies," sold by the 
life insurance companies, are not ^'profitable invest- 
ments?" Are not these illustrations enough to con- 
vince the reader that a life insurance company is a 
very poor excuse for a savings bank? If the life in- 
surance company wants to do a savings bank busi- 
ness, why don't they secure a charter and conduct the 
business right? 

It is only reasonable to suppose that if the officials 
in charge of the several state departments considered 
that a life insurance company was doing a savings 
bank business the state officials would force them to 
secure a charter which would bring them under the 
supervision of the state. 

When a thorough analysis is made of the invest- 
ment and savings policies, it can readily be seen that 
the system as it is now operated does NOT afford a 
plan whereby the industrious hard-working policy- 
holder can properly invest his savings. 

265. Let the Life Insurance Companies Run a Savings 

Bank. 

If a life insurance company wishes to operate a 
savings institution why would it not be best for them* 



SUMMARY. 193 

to secure a charter, which would place them under 
state supervision, and also place them in a position to 
compete with the legitimate savings institutions? 

In order to illustrate the great benefits the policy- 
holder may be able to enjoy under this plan, let us 
suppose that the several life insurance companies were 
permitted by law to operate a legitimate savings bank. 

Let us suppose that ''A" desired to carry some 
protection for his family should he die and also save 
some money which he would be able to enjoy in the 
future should be live. Under the present system of 
life insurance and savings he would undoubtedly pur- 
chase a 20 year endowment policy. A $1,000 endow- 
ment policy will be used for illustration. 

266. Introductory Explanations. 

Should ''A" desire to leave $5,000 for his family 
in case of his death and have $5,000 for his own use 
should he live 20 years it will only be necessary to 
multiply these results by five (5) in order to ascertain 
the proportionate results. The same rule may be ap- 
plied where $10,000 or more may be desired. 

As ^^A" desired to purchase protection and ^invest- 
ment,'' in order to secure as good an ''investment" 
as possible, paying the largest amount of money at 
the end of twenty years, not to his family should he 
die, but to himself should he live, he would undoubt- 
edly select the participating or ''dividend" paying 
form of policy, and still be actuated by that same 
desire to have a large amount of money at the end 
of 20 years, which the agent of the life insurance com- 
pany would ESTIMATE he would be able to receive 
at the end of 20 years, he would very likely have the 
policy written on the "deferred dividend" plan. 

Let us suppose that "A" w^as 35 years old. It is 
only fair to place the age at 35, as this is the average 
age of persons purchasing insurance. In order that 
no partiality may be shown in this illustration the 



194 FALLACIES OP LIFE INSURANCE. 

average premium will be adopted. Some companies 
may charge more and others less. 

As it will be necessary to use the non-participating 
rate in this illustration and as practically all of tHe 
leading well established life insurance companies sell- 
ing non-participating insurance are operating on the 
3^ per cent basis, this basis will be here used. This 
will enable ''A" to purchase his protection in a thor- 
oughly reliable company for the smallest net cost to 
him. 

Let us suppose that the savings bank operated by 
the life insurance company will pay 3 per cent on its 
deposits, as practically all of the largest and most sub- 
stantial banking institutions pay 3 per cent interest on 
their savings deposits. 

By adopting the 3^ per cent basis for the life in- 
surance company and 3 per cent interest basis for the 
savings bank will not conflict in any way. While the 
savings bank and the insurance company are being 
operated by the same set of officers the two institu- 
tions will be operating under two separate and dis- 
tinct charters. We will suppose that when any prem- 
iums are paid to the life insurance company the offi- 
cers will see that the insurance company receives the 
amount of premium required for protection and the 
balance will be turned over to the savings bank de- 
partment. 

267. Illustration. 

To best illustrate the future results to be obtained 
under the two different plans, let us suppose that ^^A'' 
purchased a $1,000 death claim upon the 20-year en- 
dowment plan for the average annual premium of 
$50.63. This plan will furnish the protection and 
* investment" under one contract hereinafter called 
the endowment policy. 

He also purchases a $1,000 death claim on the ordi- 
nary life non-participating plan 3^ per cent basis for 



SUMMARY. 195 

the average annual premium of $22.20 and the balance 
of the $50.63, which is $28.43, is deposited with the 
savings bank bearing 3 per cerrt interest. 

Under the endowment policy should death occur 
during the 20 years ''A's" beneficiary will receive 
$1,000. Should ''A" live to the end of the 20th year 
the policy will guarantee $1,000 in cash for surrender 
together with the accumulated ^'dividends," if any, 
and the deal will be closed. Should ''A/' desire in- 
surance after that time he will be required to pass 
a re-medical examination and purchase his insurance 
under some new policy for the premium required for 
his attained age of 55. 

Under the savings bank plan should death occur 
during the 20 years ''A's" beneficiary will not only 
receive the $1,000 death claim payable under the ordi- 
nary life policy, but in addition thereto each yearly 
deposit made of $28.43, plus the interest increments to 
date of demise. Should death occur the first year 
the beneficiary will receive the $1,000 death claim, 
plus the savings or investment of $28.43, or $1,028.43. 
Should death occur the 20th year the beneficiary will 
receive the death claim of $1,000, together with the 
accumulated savings of $786.65, or a total of $1,786.65, 
or an average excess estate for the whole 20 vears of 
$407.54. 

Should ''A" live to the end of the 20th year and 
not need the $1,000 insurance protection and wish to 
surrender the same, the ordinary life policy will have 
a cash surrender value of $310.75. This amount, to- 
gether with the accumulated savings of $786.65, will 
give a guaranteed total of $1,097.40 or a guaranteed 
excess cash of $97.40 over the endowment plan. 

Should ^'A" need the $1,000 insurance or protection 
after the 20th year, the interest on the accumulated 
savings of $23.59 will more than pay the premium of 
$22.20 and upon his death ''A'' will leave a total 
estate of $1,786.65, and the cash value of the ordinary 



196 FALLACIES OF LIFE INSURANCE. 

life policy will be increasing each year by the pay- 
ment of the premium from the interest on the savings 
just the same as were the premiums paid outright by 
''A". Should ''A" live to age 70 and wish to close 
out his deal for cash the cash value of the ordinary 
life policy will have increased to $598.04, which, to- 
gether with the savings of $786.65, will give a total 
cash estate of $1,384.69. 

Let us suppose that ^^A" at ?ge 55 would still be 
able to pass a satisfactory mxcdical examination to 
secure new insurance. The interest worth of the cash 
he would receive at the end of the 20th year under 
the endowment policy would NOT purchase sufficient 
insurance at the premium for his advanced age to 
leave an estate of $1,786.65 upon his death. 

Now let us suppose that ^^A" should become finan- 
cially embarrassed any year and be unable to continue 
paying for his insurance and investment. For illus- 
tration we will take the fifteenth year (any year after 
the third will produce proportionate results). Under 
the endowment policy he would be obliged to adopt 
one of the following plans : 

First — Surrender the policy for its cash value of 
$674, together with any accrued '' dividends" and by 
so doing, he will also be surrendering the protection 
and should ''A" desire protection it would be neces- 
sary to pass a medical examination and secure a new 
policy. Second — borrow from the company the amount 
of the accumulated reserve, $674, to pay the remain- 
ing premiums. This would reduce the death claim 
to $326. 'A" would also be required to pay 5 per 
cent interest on the loan, for the use of his own money. 
The interest on the loan of $33.70, together with the 
premium of $50.63, would make the total yearly cost 
$84.33, not for the original $1,000 death claim, but for 
a death claim of only $326. Of course by adopting: 
this plan ^^A" would not reduce any ^^DIVIDENDS" 
he might receive on the policy at the end of the 20th 



SUMMARY. 197 

year. Third — cease paying any further premiums and 
request the company to extend the $1,000 death claim 
as term insurance for the next 5 years, as provided 
in the policy, and should *^A'' live to the time the 
original endowment would have been payable, the term 
policy would have a cash value of $758. This plan 
of settlement should be adopted by all means in re- 
lieving ^^A" of his most objectionable form of policy. 

Under the savings bank plan the accumulated sav- 
ings the 15th year would amount to $544.71. He 
could cease paying the investment part of the premium 
of $28.43 and the interest worth of the accumulated 
savings would only lack $5.86 of paying the premium 
on the full $1,000 death claim, or, first, surrender the 
ordinary life policy for its cash value of $219.15. This 
amount with the accumulated savings of $544.71 would 
give a total cash of $763.86 instead of $674, or an ex- 
cess cash of $89.86. 

Should ^^A" desire insurance at this time he need 
not surrender the ordinary life policy, as this would 
be furnishing permanent insurance for the smallest 
net cost ; second, borrow from the company the amount 
of the accumulated reserve of $219.15 on the ordi- 
nary life policy. Withdraw $454.85 from the savings 
account ; $219.15, plus $454.85, equals $674, the amount 
of the available cash he would have on the endow- 
ment policy. ^^A" would also have $89.86 left in the 
savings account. Five per cent interest on the $219.15 
secured from the insurance company of $10.95, plus 
3 per cent interest on the $454.85 taken from the sav- 
ings account of $13.64, will give a total interest cost 
of $24.59. Deducting the interest worth of the $89.86 
in the savings account of $2.69 yearly will leave a 
net interest cost of $21.90 for the use of $674, instead 
of $33.70 on the endowment policy. The interest cost 
of $21.90, plus the insurance premium of $22.20, which 
is $44.10, represents the total yearly cost for a death 
claim of $780.85. This amount, together with the 



198 FALLACIES OF LIFE INSURANCE. 

$89.86 in the savings bank, would leave a total estate 
of $870.71 should ^'A's" death occur. Therefore ^^A'' 
would be paying $84.33 for a death claim or estate of 
$326 under the endowment policy as compared with 
$44.10 for a death claim or estate of $870.71 under the 
savings bank plan. 

By withdrawing $454.85 from the savings account 
''A" would be losing the 3 per cent interest thereon. 
The loss of the 3 per cent interest of $13.64 produces 
the same result as though he had received the same 
and paid it out again for the use of the $454.85. Third 
— Should ^^A" simply cease paying premium under 
the savings bank plan and w^ait for five years for his 
cash the same as shown in the third example under 
the endowment plan, the results would be as follows : 

The ordinary life policy would have a cash surrender 
value of about $192.40 after extending the insurance 
for five years. The accumulated savings plus their 
interest worth for five years, would amount to $631.48. 
Surrender the ordinary life policy for $192.40, together 
with the savings accumulations of $631.48, would 
equal $823.88, as compared with $758 on the endow- 
ment policy or an excess of $65.88. 

Again let us suppose that ^^A" had purchased his 
protection and investment under the savings bank plan 
and after the tenth year he would be unable to pay 
the $50.63 for protection and investment. Should this 
condition arise the protection would be needed all 
the more for his beneficiaries. 

In order to pay the premiums of $22.20 annually 
authorize the savings bank to transfer this amount 
from the savings account already accumulated to the 
insurance company, and by so doing the full $1,000 
death claim would be kept in force without placing a 
lien upon it, and the $22.20 so transferred would in- 
crease the cash value of the insurance policy. By 
keeping the savings element of the premium separate 
from the protection element ''A" would not be pay- 



SUMMARY. 199 

ing off more of his death claim than he should be 
required to. 

The cash value of the ordinary life policy the tenth 
year is $135.76 and the 11th year it is $151.65, or an 
increase of $15.89. By transferring $22.20 of the sav- 
ings to pay the premium on the insurance policy '^A'^ 
had enhanced the value of his insurance policy $15.89, 
therefore it had only actually cost him $6.31 to carry 
the $1,000 death claim for this year. The interest 
worth of the accumulated savings after the $22.20 
premium is deducted ($313.55), which is $9.40, will 
pay the actual cost of the insurance of $6.31, and 
]eave an excess of $3.09. The interest of the accumu- 
lated savings will be more than paying the cost of 
the $1,000 death claim. During the five years he will 
leave an insurance estate of $1,000 under the endow- 
ment policy and under the savings bank plan he will 
leave an insurance estate of $1,000, together with the 
already accumulated savings of $544.71, plus the in- 
terest worth of the savings yearly to date of demise. 

It may not be possible for the investment seeker to 
find a life insurance company operating with a savings 
bank in connection, but the above illustrations should 
be enough to show the fallacy of purchasing the high- 
priced ^ investment life insurance policies'' for a 
legitimate investment. Anyone seeking an investment 
in connection with protection should purchase the pro- 
tection of a protection furnishing company (life in- 
surance company) at the smallest net cost to the in- 
sured and invest the investment part of the premium 
with an investment furnishing company (bank, sav- 
ings bank or trust company or the securities they may 
have for sale paying 5 or 6 per cent), thereby se- 
curing the most protection and investment for the 
money paid for the same, consistent with reliable and 
substantial business principles. 



200 FALLACIES OF LIFE INSURANCE. 

268. Insured Should at Least Deposit His Savings in 

a Savings Bank. 

Of course it is not absolutely necessary that the 
savings bank should be run in connection with the life 
insurance company. While it might be a little more 
convenient for both the insured and the beneficiary, 
yet the insured should certainly be able to find some 
banking institution in which to deposit or invest his 
savings. If the insured must be '^forced" to save his 
money he could probably make arrangements with the 
savings bank whereby he could deposit the amount 
of the premium to be paid for protection and invest- 
ment and the bank would undoubtedly go to the trou- 
ble of remitting the amount of the premium to the 
insurance company in order to secure the savings ac- 
count. If the insured really must be ^ ^forced'' to save 
his money he could very easily instruct the bank to 
refuse to return his savings unless he deposited each 
year the amount required for the life insurance prem- 
ium and the savings. The bank would undoubtedly 
enter into such an agreement as this, as the life insur- 
ance companies do. 

Of course it would be more convenient for the bene- 
ficiary to have the insurance company and the savings 
bank run in connection. "When the beneficiary de- 
sired to collect the death claim and also secure the 
savings account, the bank book and the life insurance 
policy could be sent to the company at the same time 
in the same envelope. This advice is only given as 
a suggestion and not as a command. 

269. Life Insurance Business Should Be Reformed. 

The above illustrations must certainly be interest- 
ing to the reader, who has purchased the high-priced 
^'investment insurance," when he notes the great ad- 
vantages to be obtained where the protection and sav- 
ings bank plan is adopted instead of the present form 
of endowment policies. While it may be true that 



SUMMARY. 201 

but a small number of policy-holders, comparatively 
speaking, die during the latter years of the endow- 
ment period, who have purchased the endowment poll- 
cies, yet when we calculate the vast sums of the ^^in- 
vestment" policy-holders' money, which is constantly 
being jeopardized to loss by death, and the true ''divi- 
dends'' to be realized being so small, if any, should 
clearly show that there is great opportunity for reform 
in the present method of conducting the life insurance 
business. 

Where the high-priced ''investment" forms of poli- 
cies are purchased, it must be considered better luck 
than management that greater losses do not occur to 
the insured's beneficiary or estate caused by death. A 
man who is careful of the consequences of the TOO 
ALLURING enterprises, or careful not to act when 
the end is of doubtful utility, or probably impractic- 
able, is NOT investing his money in "investment life 
insurance. ' ' 

270. Company and Policy-Holder Protected. 

If the above plan was adopted for conducting the 
life insurance business, the company as well as the 
insured would be protected. If the insurance com- 
panies really "force" their policy-holders to save their 
money, by adopting the above plan the policy-holders 
would be "forced" to save their money without as- 
suming too great a portion of their own death claim, 
thereby subjecting their savings to loss by death. The 
field of operation would be increased instead of les- 
sened and the insured could honestly be induced to 
purchase his protection and investment from the same 
company, so to speak. 

The time may come when the savings or "invest-. 
ment" idea may be divorced from, or properly con- 
nected with, the life insurance business, but not until 
the insuring public knows enough about life insurance 
to refuse to purchase anything but life insurance from 
a life insurance company. 



202 FALLACIES OF LIFE INSURANCE. 

271. Another Injustice. 

This would be an opportune time to explain an- 
other one of the gross injustices practiced by life in- 
surance companies. Any premium paid to a life in- 
surance company to create the cash value or self-in- 
surance fund or to create an ^ investment," is to be 
increased by its interest worth on a 3, 3^ or 4 per 
cent basis, as adopted by the company, and any amount 
of money the insured is able to secure from the com- 
pany on the sole security of his policy is simply the 
insured's own cash plus its interest worth anci any 
money paid to a life insurance company to create such 
self -insurance fund or ^ investment fund" does NOT 
increase the death claim. It is simply an amount of 
money left with the company to purchase some fu- 
ture benefit providing the insured lives to the end of 
the specified time when he is to receive such benefit. 

Should the insured become financially embarrassed 
and desire to secure from the company the excess money 
together with its interest worth, left with the company 
to purchase possible future benefits, the company will 
charge the insured 5 per cent for the use of his own 
money, therefore the insured is required to pay an 
extra tax of 2 per cent for becoming ^^hard-up" and 
wishing to secure the use of his own money. This 2 
per cent tax is disposed of by the companies on the 
following plan : First, should the policy be purchased 
from a participating company on a 3 per cent basis, 
this 2 per cent tax goes into the excess interest earn- 
ing ^^pot" to be divided among all of the policy-hold- 
ers in his class; second, where the policy is purchased 
from a non-participating company on the 3 per cent 
basis, the 2 per cent tax goes to the company to help 
pay managing expenses. In the first instance the policy- 
holder, who is not compelled to borrow his money 
from the company, secures unjust tribute from his 
brother policy-holder who is compelled to withdraw 
the cash value of his policy. In the second instance 



SUMMARY. 203 

the policy-holder who becomes ^^hard-up" is required 
to pay t J he company more than his adequate share of 
managing expenses. Does this seem just? Is this 
not discrimination? Does this verify the statement 
made by the companies ''that they always give their 
policy-holders a fair and equitable dealT' Why do 
not all the companies operating on the 3 per cent 
basis charge the policy-holders 3 per cent for the use 
of their own money? Or the companies operating 
on the 3^ or 4 per cent basis charge their policy- 
holders 3^ or 4 per cent for loans secured? 

It is not unjust to charge 5 or 6 per cent interest 
where a legitimate loan is to be secured from the 
company, because anyone securing such loan would 
be compelled to pay 5 or 6 per cent interest to secure 
a loan from any other financial institution. Should 
the policy-holder, who has left his money with an 
insurance company to accumulate at 3, 3^ or 4 per cent 
for future use, be compelled to pay the company 5 or 
6 per cent for the use of the same should he be com- 
pelled to withdraw it? 

272. Policy Reserves Not a Bank Account. 

The agents of the life insurance companies never 
lose the opportunity to impress upon the mind of the 
prospective purchaser that a loan may be secured upon 
the sole security of the policy should the insured be- 
come financially embarrassed at any time. 

The strong argument used in the sale of high-priced 
insurance is, ''that the insured will have a large 
amount of money which may be drawn on at any time 
to tide the insured over financial difficulties,'' but the 
agent does not explain to the insured that by with- 
drawing the excess cash accumulations he is reduc- 
ing the death claim should his death occur. 

The lower priced policies with their reduced self- 
insurance fund do not offer the glaring inducements 
for the insured to withdraw the same. 



204 FALLACIES OF LIFE INSURANCE. 

273. ^'Safety Clause/' 

Some companies are now inserting in the loan agree- 
ments in their policies what they term a '^safety 
clause/' i. e., the company reserves the right to defer 
the making of a loan to the insured on his policy for 
from 3 to 6 months. In order for a life insurance 
company to realize large interest earnings on their 
loans, it is necessary to make long time loans. 

Where the policy-holder has purchased the high- 
priced ^ ^ investment " policy with its large cash sur- 
render values and he looks upon these values as his 
bank account to be drawn on for temporary needs, the 
insurance companies will be compelled to draw on 
their long time investments to comply with the loan 
provisions of the policy when the funds reserved for 
immediate use have become exhausted. Is it not a 
good indication that this condition is close at hand 
when a life insurance company is compelled to insert 
a ^'safety clause" in their loan agreements? 

274. Should '* Safety Clause" Policy Be Purchased? 

Policy-holders would be most likely to draw upon 
their insurance cojnpany bank during a financial panic. 
Would the insured deem it a prudent act to purchase 
his ^4ife insurance investment policy" from a com- 
pany which was compelled to protect itself by the 
'^safety clause," thereby being unable to secure his 
money on short notice? 

275. Insured Should Protect Himself. 

By purchasing the insurance protection upon the 
lower costing plan and placing the investment part 
of the premium with a banking institution, which is 
conducting its business in a way to meet these emerg- 
encies, or investing the investment part of the prem- 
ium in reliable bonds, which may be negotiated at 
any time, the insured will avoid having his money 
held up by the life insurance company. 



SUMMARY. 205 

A life insurance company can furnish almost un- 
limited benefits to beneficiaries, by perpetuating the 
income of the producer and also by giving the in- 
sured the satisfaction of knowing those dependent 
upon him are protected and the beneficiaries the sat- 
isfaction of knowing they are protected, yet there are 
many methods and practices resorted to by the officers 
of the life insurance companies in order to induce 
the sale of life insurance which is causing the loss of 
millions of dollars annually to policy-holders and their 
beneficiaries. As it will be many years before laws 
will be passed, which will in all ways protect the pol- 
icy-holders, if the insured wishes to be protected he 
MUST protect himself. 

The insured can only protect himself by gaining suf- 
ficient knowledge of the life insurance policies to 
know what to buy and how to buy it. 



206 FALLACIES OP LIFE INSURANCE. 

CHAPTER XIII 

HOW TO PURCHASE LIFE INSURANCE 

276. The Selection of a Policy. 

Where a life insurance policy is to be purchased 
the first important point to be decided by the pur- 
chaser is WHAT benefits are desired. Life insurance 
was primarily designed to afford protection and 
where this protection is afforded it must be paid for. 
If the life insurance policy is purchased for protec- 
tion it should be purchased at the smallest net cost 
to the insured and if purchased for protection for 
the smallest net cost, the insured will receive full value 
for the premiums paid. 

277. Cost. 

In calculating the cost or the amount of premium 
the company must receive under any form of policy 
to be issued, the first element taken into consideration 
is the mortality expense, and the mortality expense 
element of the premium is the amount of the policy- 
holder's share of the fund to be paid to the bene- 
ficiary upon the death of one of the other policy-hold- 
ers called insurance. There is no form of policy is- 
sued by any life insurance company which does not 
contain this element of expense, therefore if the pur- 
chaser of insurance has no one to protect or no inter- 
est to protect against loss of his productive worth 
he has nothing to insure and that portion of the prem- 
ium paid to the company to meet the mortality ex- 
pense will be a total loss to the insured. 

Where a life insurance policy is purchased for ^^in- 
vestment'' the mortality element of the premium must 
be paid just the same and a life insurance company 



HOW TO PURCHASE LIFE INSURANCE. 20? 

is not permitted by law to issue a contract which does 
not contain the mortality expense element in the 
premiums to be received, and should a life insurance 
company issue any form of policy which did not con- 
tain the mortality element of expense it would not be 
conducting its business in accordance with the terms 
of its charter. 

278. Mortality Expense Element Destroys ''Invest- 
ment'' Feature. 

"Where a life insurance policy is purchased for ''in- 
vestment'' or to afford a place for the insured to de- 
posit his savings the mortality expense element of the 
premium is so large that it destroys the "investment" 
feature and is too expensive to warrant the insured in 
adopting this method of accumulating his savings. 

299. Don't Use a Life Insurance Company for a Sav- 
ings Bank. 

It is very unwise for a person to join an organiza- 
tion and contribute money to be paid to a beneficiary 
upon the death of one of its members in order to 
secure a place to deposit his savings. If the insured 
CANNOT invest his savings he can at least deposit 
them with some bank or trust company, which will 
pay 3 or 4 per cent interest for the use of the sav- 
ings, and should the insured die in the meantime his 
savings will NOT be lost to his estate. 

280. Time. 

"Where a policy is to be purchased to afford protec- 
tion the next point to be considered is, "how long 
will this protection be needed." The protection can 
be purchased for a limited number of years or for 
the whole of life, which is, according to the Amer- 
ican Table of Mortality, the years from the age of 
the insured at the time the policy is purchased to 
age 96. If the purchaser only desires the protection 



208 FALLACIES OF LIFE INSURANCE. 

for five, ten, fifteen or twenty years to protect his 
business interests or to protect his children until they 
become self-supporting, there is no use purchasing the 
protection for the whole of life, which is 61 years 
where the policy is purchased at age 35. Every year 
the policy is carried the insured must pay his share 
of the mortality expense and expense of management 
until the age of 96. If you only need protection for 
20 years, what is the use of paying for 61 years? If 
you are undecided as to the number of years the pro- 
tection may be needed, purchase the protection upon 
the whole life continuous premium plan, which will 
afford the protection at the smallest net cost, because 
the insured can surrender the policy at the end of 
any year and he will be only required to pay for the 
years the protection was actually afforded. If the in- 
sured should decide that he did not need the protec- 
tion after the 20th year, the policy can be surrendered 
and the excess money, which the insured paid to the 
company in order to be able to pay a level premium 
or an equal amount each year, will be returned to the 
insured. 

281. Surrender Fee. 

"Where the policy is purchased on the non-partici- 
pating plan, a small surrender fee may be charged 
where the policy is surrendered during the first years, 
because the amount contributed by the insured for 
managing expenses is very small, and in order to off- 
set the initial expense entailed in placing the insur- 
ance on the books of the company, it is necessary to 
charge a small fee for surrender. 

Should the insured know positively that he will not 
need the protection for more than ten, fifteen or twen- 
ty years the renewable term policy should be pur- 
chased as explained in Chapter VI, and yet if the 
insured is unable to earn more than six per cent with 
his money, on account of the cash surrender value of 



HOW TO PURCHASE LIFE INSURANCE. 209 

the whole life continuous premium policy after the 
third year, the whole life policy will furnish the pxo- 
tection at the smallest net cost. 

282. Ordinary Life Form May Be Changed to Other 

Forms. 

Should the whole life continuous premium policy 
be purchased (at age 35) and the insured would dis- 
cover after he had paid the ninth premium, that he 
was not going to need the protection longer than 
eleven additional years, or twenty years in all, he 
can pay no more premiums and take advantage of 
the ^^ extended insurance" clause in the policy, and 
the company will carry the death claim for the next 
eleven years for the nine premiums already paid. 

If the purchaser, after studying the foregoing ex- 
planations and illustrations, should still be of the opin- 
ion that a good, profitable and substantial investment 
could be secured by purchasing the high-priced ^^in- 
vestment" forms of policies the author would suggest 
that the ^^5 per cent gold brick policy" should be pur- 
chased, as this will afford the greatest IMAGINARY 
investment for the premiums to be paid that the pur- 
chaser could secure, but on the other hand should the 
reader desire to purchase the needed protection in a 
conservative, business-like w^ay, the whole life continu- 
ous premium policy should be purchased by all means, 
because this form of policy can be converted to the 
lower priced term insurance or changed to the single 
premium or limited payment, or even the high-priced 
^ ^ investment " forms at any time desired at the small- 
est net cost to the insured, and this can be done with- 
out a medical re-examination. 

283. Adequate Premium. 

The average gross premiums given in the following 
table for a $1,000 Permanent Standard Death Claim 
are fair and adequate to both the company and the 



210 FALLACIES OF LIFE INSURANCE. 

insured. Some companies charge a little less and some 
considerable more, but where a non-participating com- 
pany charges more than a few cents per $1,000 than 
the rates here given it is unnecessary and should not 
be paid. 

Average Gross Non-Participating Premium for a $1,000 

Permanent Death Claim. 

21— $15.39 31— $19.72 41— $27.14 51— $40.71 

22— 15.73 32— 20.29 42— 28.14 52— 42.61 

23— 16.09 33— 20.89 43— 29.21 53— 44.63 

24— 16.47 34— 21.53 44— 30.35 54— 46.78 

25— 16.87 35— 22.20 45— 31.57 55— 49.08 

26— 17.28 36— 22.91 46— 32.86 56— 51.54 

27— 17.72 37— 23.66 47— 34.23 57— 54.16 

28— 18.18 38— 24.45 48— 35.70 58— 56.97 

29— 18.67 39— 25.29 49— 37.27 59— 59.97 

30— 19.18 40— 26.19 50— 38.93 60— 63.18 

Where an annual premium is paid to the company 
for a $1,000 death claim in excess of those shown 
above, it will be paid for excess reserve or self-insur- 
ance fund, ''dividends," ''investments" or additional 
contributions for expense of management, all or any 
of which is not only unnecessary, but unprofitable to 
the insured. 

284. Insured Must Pay for Additional or Imaginary 
Benefits. 

If the purchaser wants large "dividends" pay in 
large amounts to be returned at some future time as 
"dividends." If the purchaser wishes to cease paying 
premiums at any time, he can pay it all in one prem- 
ium, or any number of additional premiums he may 
desire, thereby paying for his insurance in advance 
to age 96, whether he lives to be required to make 
such payments or not. There are only three persons 
out of 100,000 who live to age 96. 

If the purchaser wants an "investment" figure on 



HOW TO PURCHASE LIFE INSURANCE. 211 

about how much he would like to receive as an ^^in- 
vestment'' and pay the money accordingly, as there 
is no limit to the amount the company will pay on an 
^'investment policy'' providing the purchaser will pay 
the money to the company to be returned as an '"in- 
vestment," or the purchaser may contribute as much 
in addition to the amount already contributed for 
managing expenses on the whole life continuous prem- 
ium policy as he may feel in a position to pay, as 
the companies are not liable to refuse any money, so 
contributed, and by adopting any of these plans the 
purchaser may feel assured that he is receiving the 
SMALLEST amount of protection for the GREATEST 
amount paid for the same. 

285. Net Premiums. 

By referring to the table of net premiums in Ar- 
ticle 331 the reader can determine the net premium 
required for the different forms of policies and by 
deducting the net premium on the different forms, 
from the premiums required on the policy to be pur- 
chased, the purchaser can determine the amount to 
be paid for expense of management upon the non- 
participating forms or the amount that SHOULD be 
returned as ^^ dividends" on the participating forms. 

286. Surrender Values. 

By referring to the table of surrender values under 
Articles 332 and 333, the purchaser can determine 
the amount he should receive for each $1,000 of death 
claim purchased, should he desire to surrender the 
policy any year, generally after the third. If the 
cash value shown in the policy is not equal to the 
amounts given in the table of surrender values for 
the years stated, the difference in the surrender values 
represents the amount charged for surrender. There 
are a few, and but a very few companies, either on 
the participating or non-participating basis, who do 
not charge a fee for surrender up to the 10th or pos- 



212 FALLACIES OP LIFE INSURANCE. 

sibly 15th year of the policies. The purchaser should 
then refer to the explanation of the different condi- 
tions, privileges and restrictions- in Chapter XIV and 
carefully compare the same and see that there are no 
misleading statements made, the most of which will 
be explained, and ^^ check-up" all of the conditions 
in the policy to be purchased and see that none are 
omitted. 

287. How to Select the Policy. 

Now that the purchaser has ascertained what the 
policy is to be purchased for, the number of years it 
should be written to cover, fair and equitable prem- 
ium to be paid for the same, the purchaser should 
then select the company which will meet all of the 
above requirements. If the policy under investiga- 
tion should not fulfill the desired requirements a copy 
of the ^ 'Handy Guide" published by the Spectator 
Company of New York, or a copy of the '^Vada- 
Mecum," published by Flitchcraft at Oak Park, Illi- 
nois, could undoubtedly be borrowed from some local 
life insurance agent. Either one of these publications 
will furnish the premium rates, cash surrender values 
and sample policies of practically all the life insurance 
companies. If the reader is unable to borrow tempo- 
rarily one of these publications it would be a vei^ 
profitable investment to purchase the same. The 
"Handy Guide" may be secured for $2.50 or the 
^^Vada-Mecum" for $1.25. This will give all of the 
information desired from a thoroughly reliable source. 
After the company has been selected the reader should 
write the company stating his age at nearest birth- 
day and the form of policy desired, and the company 
will be only too glad to send a sample policy, which 
will be an exact duplicate of the policy to be pur- 
chased. 

Where a policy is to be issued on the 3J per cent 
basis the cash surrender value or self-insurance fund 



HOW TO PURCHASE LIFE INSURANCE. 213 

will be a little less than were it issued on the 3 per 
cent basis. The premium rates should be less on the 
3^ per cent basis than the 3 per cent, yet there are 
some companies operating on the 3^ per cent basis that 
charge a higher premium than some of the companies 
operating on the 3 per cent basis. While practically 
all the non-participating companies are operating on 
the 3^ per cent basis their premiums are less and 
their cash surrender values are less than the companies 
operating on the 3 per cent basis. The purchaser 
should not be misled by the large cash surrender 
values. The premium rates should be considered. In- 
surance should NOT be purchased for money to be re^ 
turned to the insured at some future time, as he may 
never live to receive this money. 

288. How Policies Should Be Written. 

Where the insured is contemplating the purchase of 
a large amount of insurance, it might be advisable 
to purchase the same in two or three different com- 
panies. Where $5,000 of insurance is to be purchased 
from the same company, it should at least be written 
in two policies of $2,500 each. If $10,000 or more is 
to be purchased it should be written in multiples of 
$2,000. Should the insured for any reason wish to 
surrender any portion of his insurance, it can be very 
easily done when issued in this way. Should the in- 
sured become financially embarrassed and be required 
to surrender a portion of his insurance, any number 
of the policies may be surrendered for their cash 
value and the actual insurance will have been reduced 
only to the extent of the difference between the cash 
value and the death claim value of the policies so sur- 
rendered. 

289. Size of Company Does Not Necessarily Indicate 

Strength. 

The purchaser should bear in mind that a large 
company is no stronger financially than a small com- 



214 FALLACIES OF LIFE INSURANCE. 

party. While it is true they may have more insurance 
in force, yet their liability will be just as large in pro- 
portion and while their surplus fund may be a great 
deal larger, yet the larger companies have invariably 
been in business a great many more years, therefore 
there will be the same proportionate liability against 
this fund and should all of the money to which the 
policy-holders were entitled to been returned to them, 
these large surplus funds would not exist, or should 
the company not have charged a great deal more for 
their insurance than it actually cost to carry the same 
these large surplus funds would have never been 
created. It is not uncommon to hear a life insurance 
agent boast of their enormous surplus fund, where if 
he thoroughly understood how it was created he would 
very likely keep still. 

290. Participating or Non-Participatingf Insurance. 

If the reader is thoroughly convinced that the par- 
ticipating company will furnish his protection at a 
smaller net cost to him than a non-participating com- 
pany, the insurance should be purchased on the par- 
ticipating plan. Where the participating policy is 
selected it should be written on the annual ^'dividend" 
plan. The purchaser should be very sceptical of the 
estimates placed on the '^ dividends" to be paid, by the 
agent, as ^'estimated" amounts are invariably in ex- 
cess of the amounts actually paid. It is very easy for 
the agent to ^'estimate" large ^'dividend" returns in 
order to secure the sale of a policy and after the policy 
is purchased, ''the premiums paid and the agent gone,'' 
the policy-holder is generally left to "watch and wait.'' 

291. Printed Statements Should Only Be Accepted. 

The most reliable life insurance agents only furnish 
the printed statements of the actual "dividends" paid, 
which statements are sworn to by the officers of the 
company, and the purchaser should only use such 



HOW TO PURCHASE LIFE INSURANCE. 215 

printed statements in calculating the future cost of his 
insurance. 

292. Why Should a Charge Be Made for Participa- 
tion? 

At age thirty-five of the insured the average prem- 
ium charged by the participating company in excess of 
the average premium charged by the non-participating 
company, both on the 3^ per cent, basis on a whole life 
20 payment policy is about $6. This $6 represents the 
charge made for participation. The strong argument 
used by the agent of the participating company is, 
^'that the 'dividends' the insured will receive upon his 
participating policy will reduce the premium below 
that charged by the non-participating companies," and 
the agent will exhibit a vast array of ''statistics" actu- 
ally proving this to be true. The agents of the par- 
ticipating companies are eyer proclaiming the fact that 
''the non-participating rate is too high, that the com- 
pany which is dealing in futures, as it were, charge 
more than is actually required to carry the insurance," 
and this MUST be true because the agents of the par- 
ticipating companies say that it is and the officers of 
the participating companies instruct their agents to 
use these arguments. Now granting this to be true, 
why is it necessary for the participating company to 
charge the insured $6 annually for each $1,000 of death 
claim issued as above stated, in order to permit the 
policy-holder to participate in the "dividends or pro- 
fits" of the company f If the non-participating rate 
is too high, why do not the participating companies 
charge the non-participating rate and say to their 
policy-holders, "this rate is too high we will give you 
a liberal dividend, which will reduce the cost to what 
it should heV Is this illustration not enough to 
prove to any fair minded person, the fallacies of the 
"dividend" paying system of life insurance? 



216 FALLACIES OF LIFE INSURANCE. 

293. Insured Should Never Accept Rebates in Any 
Form. 

A policy which offers a rebate or a portion of the 
first or subsequent premiums, should never be pur- 
chased, as this is prima facie evidence that the pre- 
miums charged are in excess of the actual premium 
required to produce the guaranteed benefits provided 
for by the policy. Many policy-holders have purchased 
these forms of policies on account of the rebate offered 
and it was for this purpose that the high premium was 
charged to afford this rebate. In every community 
there is always the person who is patiently waiting 
for some bargain of this kind to ^^show up,'' and the 
person that purchases them generally gets the bargain 
—not. 

Where the purchaser uses the rebate for a basis for 
purchasing his life insurance he is beginning at the 
wrong end. The net premium should only be used as a 
basis. Where the rebate is offered by the agent the 
policy should never be purchased. One of the principal 
conditions upon which the policy is issued is, ^^that 
the first premium must be paid in full," consequently 
when the policy-holder accepts a rebate upon the first 
premium, he invalidates his policy absolutely. See 
Article 302. Is it not fair to presume that the agent 
who would be dishonest enough to offer a rebate, 
would carry his dishonesty one step farther and inform 
the company that such rebate had been made should 
the death of the insured occur during the first year, 
thereby invalidating the insurance? If the insured 
purchased the policy with the intention of carrying 
the same, it would be a great deal more sensible 
for him to keep the portion of the first premium he 
had actually paid and wait until the time the second 
premium would become payable and then purchase his 
insurance and pay for it in a way which would not 
invalidate the same according to the conditions of 
the policy. Anti-rebate laws have been passed by 



HOW TO PURCHASE LIFE INSURANCE. 217 

almost every state in the union, nevertheless there 
is a great deal of rebating being done. 

294. Acts Held as Rebating by the Courts. 

There are a great many schemes adopted by the 
agent and the insured to avoid the anti-rebate law. 
Notes are given by the insured for the payment of 
the first premium, as evidence that the first premium 
was paid, with the distinct understanding that such 
notes were to be returned to the insured, by the agent, 
unpaid. It is not uncommon for the agent to allow the 
insured certain remuneration for furnishing the agent 
a list of the names of the prominent men of the com- 
munity in which the insured resides, such remunera- 
tion to act as a rebate or a refund of a portion of the 
first annual premium upon the policy, which the in- 
sured must purchase in order to receive such remun- 
eration. In every case, where these acts have been 
tried in court, the judges have decided that these acts 
are rebating, as it is intent and not the acts that con- 
stitutes the crime. No reliable life insurance agent 
will offer a rebate, because he knows he is violating 
the law when he does so, and if the agent will violate 
the law in one way it is an even guess that he will vio- 
late the laws in other ways. How can the purchaser 
expect to receive a correct explanation of the life in- 
surance policy to be purchased from an agent who is 
dishonest enough to offer him a rebate? 

295, The Companies Prohibit Rebating by Their 

Agents. 

The insurance companies are doing everything pos- 
sible to stop the rebate evil. The agent should be pun- 
ished to the full extent of the law for offering a rebate. 
The insured is punished for accepting a rebate, by the 
loss of any portion of premium which is paid in cash 
as the policy is absolutely voided, therefore the in- 
sured punishes himself and he should not hesitate to 



218 FALLACIES OF LIFE INSURANCE. 

allow the law to punish the agent. A premium, a por- 
tion of which has been rebated, not only buys the in- 
sured nothing, but is, in many instances, instrumental 
in inducing the insured to purchase a very objection- 
able form of policy. 

296. Purchaser Should Not Accept a Special Induce- 

ment. 

The reader should never be induced to purchase a 
life insurance policy under any special inducement or 
''because the company is going to cease issuing the 
certain form of policy." No company is going to 
stop issuing any legitimate form of life insurance pol- 
icy. If the company is going to ''stop issuing" any 
certain form of policy it is because it is so objection- 
able that the State Insurance Department has stopped 
its issue. 

297. Square Dealing Best for Company and Insured. 

There are a great many policy-holders who would 
purchase additional insurance and there are also a 
great many who are not carrying life insurance, who 
would do so, if they knew they were going to receive 
a fair and equitable policy. 

298. Purchaser May Prevent a Rejection. 

There are many instances where applicants have ap- 
plied for insurance under a certain form and have 
been rejected by the insurance company on the grounds 
that the applicant's family record, physical, financial 
or moral condition or occupation did not come up to 
the standard established by the company and a com- 
plete list of the names of all rejected applicants are 
sent to all the companies belonging to the Association 
of Life Insurance Underwriters, setting forth the rea- 
sons for the rejection, and it is sometimes hard for 
the rejected applicant to secure life insurance in any 
other company. Perhaps the reasons for rejection may 



HOW TO PURCHASE LIFE INSURANCE. 219 

be well founded, yet in many instances they are not. 
There are many persons who are first class risks and 
would be accepted by most any reliable life insurance 
company, who would purchase insurance, but for the 
fear of being rejected. Where the applicant has rea- 
son to believe that there is a possibility of a rejection, 
a test application should be made without being signed 
by the applicant until the company, to which such 
test application has been made, has either issued the 
policy or assured the applicant that it will be issued, 
and if the company will not issue the policy the person 
cannot be listed as a rejected applicant where the 
application or medical report has not been signed. The 
applicant is at liberty then to make a test application 
to some other company. 

299. Insurance Should be Carried. 

Every man of moderate means, who has a family de~ 
pendent upon him, should carry at least $2,000 of in- 
surance. The smaller the income the greater is the 
demand for insurance protection. There is very little 
excuse for a married man to refuse to carry insurance. 
$2,000 of permanent standard life insurance can be 
purchased on the twenty year renewable term plan 
from thoroughly reliable companies for from $22 an- 
nually at age 21 to $36 at age 35 which is about $0.45 
per week at age 21 and about 70 cents per week at 
age 35. Money must be at a very high premium where 
70 cents per week is worth more to a man, who is 
able to work and provide for his family, than $2,000 
would be worth to the widow and, in many instances 
young children, should the husband and father be 
taken away by the hand of death. 

The whole life continuous premium and the renew- 
able term forms of policies, afford the greatest amount 
of permanent insurance at the smallest net cost to the 
insured. 



220 FALLACIES OF LIFE INSURANCE. 

300. Insurance Paid by Surviving Policy-Holders. 

Where insurance is purchased to afford protection, 
the purchaser should select the form of policy which 
would place him in the class in his company which 
will secure the greatest amount of insurance in the 
death claim, as the insurance is the part of the death 
claim which must be paid by the surviving policy- 
holders. 

301. Cash Surrender Values Should Not be Purchaseu 

as They are not Insurance. 

The self-insurance fund element of the death claim 
is NOT insurance and where the death claim con- 
tains a large element of self-insurance the actual in- 
surance is correspondingly decreased. The only man- 
ner in Avhich the large self-insurance fund may be 
created, is by the payment of the higher premiums, 
and the policy should NOT be purchased which will 
furnish large amounts, which are accessible to the 
insured. 

If the insured desires to have a large amount of 
money for his own use in future years, purchase the 
insurance for the smaller premiums and either deposit 
the excess money required for the higher premiums in 
some bank or trust company, or invest the same 
in reliable mortgages or bonds and by so doing such 
excess money will NOT be lost to his beneficiaries or 
estate in case of death. 



POLICY CONDITIONS. 221 



CHAPTER XIV 

POLICY CONDITIONS, PRIVILEGES 
AND RESTRICTIONS 

302. Premium Payments. 

The premium payment clause in all forms of policies 
issued by legal reserve companies are very much the 
same and practically all contain the following condi- 
tions : 

First. The payment of the first annual premium 
hereon is a condition precedent to the taking effect 
hereof, and this policy shall not become binding upon 
the company until the policy is delivered and said 
premium is actually paid during the life-time and good 
health of the insured. 

Second. That all premiums are payable in advance 
at the home office of the company. 

Third. That all receipts for premiums must be 
signed by some duly authorized agent of the com- 
pany generally the president, vice-president, secretary 
or treasurer. 

Fourth. This policy is based upon the payment of 
premiums annually in advance, but if premiums be 
made payable in quarterly or semi-annual instalments, 
any future instalments of the premium for the cur- 
rent policy year remaining unpaid at the maturity of 
the policy shall be considered an indebtedness to the 
company on account of the policy. 

The plans adopted by most all life insurance com- 
panies for calculating the amount to be paid, where 
the premiums are to be paid semi-annual or quarterly 
are as follows : 

To ascertain the semi-annual premium required add 



222 FALLACIES OF LIFE INSURANCE. 

4 per cent, interest thereon and divide by two (2). 
Thus an annual premium of $50.63 plus $2.02 equals 
$52.65 which divided by two (2) equals $26.33. To 
ascertain the quarterly premium add 6 per cent, and 
divide by four (4). Thus $50.63 plus $3.33 equals 
$53.96 which divided by four (4) equals $13.49. 

303. Preliminary Term. 

Some companies issue their insurance on what is 
called the preliminary term plan, and their policies 
contain the following clause. 

^'The first year's insurance under this policy is 
term insurance purchased by the whole or part of the 
premium to be received during the first policy year, 
and the policy shall be valued according to its terms 
and the laws of the state." 

Explanation : Where any form of policy is issued 
on the preliminary term plan it is only necessary for 
the company to deposit with the state insurance de- 
partment the first year, the reserve required for this 
form of policy, which is very small, generally ranging 
from $2 to $5 for each $1,000 death claim according to 
the age of the insured. The remaining yearly reserve 
deposits being enough in excess of the regular amounts 
deposited to equal the full reserve required at the end 
of the premium paying period. 

304. Grace Period. 

"A grace of thirty days will be allowed in the pay- 
ment of premiums hereafter due on this policy during 
which time the insurance shall continue in force, pro- 
vided always that whenever advantage is taken of 
the grace, interest at the rate of 5 per cent, per an- 
num shall be paid to the company for the time de- 
ferred, but in case the premium is not paid in the 
said thirty days, according to the terms of this policy, 
this policy shall cease and terminate, except as other- 
wise herein provided. If death shall occur during the 



POLICY CONDITIONS. 223 

period of grace, the unpaid premium for the current 
policy year will be deducted by the company in any 
settlement under this policy/' 

Explanation : The grace period adopted by all com- 
panies is practically the same. The above clause is 
here given, because it will be easily understood. While 
this clause in other policies may not read exactly the 
same, yet the principle involved is practically identical. 

305. Reinstatement. 

^^This policy may be reinstated on written applica* 
tion therefore, subject to evidence of good health 
satisfactory to the company, and payment of unpaid 
premiums to date of reinstatement, with interest at 
the rate of 5 per cent, per annum." 

Explanation : This reinstatement clause contains no 
limit of time the same may be reinstated. Some com- 
panies limit the time of reinstatement from two to five 
years. 

It is not profitable for the insured to reinstate any 
form of policy after it has lapsed for one year or more. 
The company will not reinstate the policy unless the 
insured can pass a satisfactory medical examination, 
and if the insured can pass a satisfactory medical ex- 
amination he can secure a new policy from any com- 
pany. 

Where the policy has been lapsed for one year, or 
more, the insured will be required to pay premiums 
for the years the policy has lapsed with interest at 
the rate of 5 per cent, per annum. There is no rea- 
son why the insured should pay premiums for years 
he has already lived, as the mortality and managing ex- 
pense element of the premium will be a total loss to 
the insured. 

New insurance can be purchased for the attained 
age of the insured a great deal cheaper than to pay 
for the years which the insured has already lived. 



224 FALLACIES OF LIFE INSURANCE. 

therefore a- policy which has been lapsed for a year, 
or more, should never be reinstated. 

306. Notices. 

^'The insured shall give prompt notice to the com- 
pany of any change of residence or post-office address. 
Notice of each and every premium due, or to become 
due hereon at the date named is given and accepted 
by the delivery and acceptance of this policy, and any 
future notice required by law is hereby expressly 
waived. ' ' 

Explanation: The policies issued by some com- 
panies do not contain the above notice clause Some 
States have passed laws requiring insurance companies 
to give their policy holders 30 days' notice of when 
the next premium will be due and payable upon their 
policy. Where the policy has been allowed to lapse 
by the non-payment of premiums and where the in- 
sured could establish the fact that this notice was 
not given, as required by law, it has been held by cer- 
tain courts that the non-payment of premium when 
due, where notice had not been given, did not give the 
company grounds to lapse the policy. 

This notice clause is only inserted in the policy where 
the company wishes to secure a waiver of the insured's 
rights, as given him by law. The insured should not 
purchase a policy containing this waiver, as it may be 
the cause of invalidating the insurance under the 
policy. 

307. Incontestability. 

''This contract shall be incontestable after one year 
from date of issue, except for non-payment of prem- 
iums. It is free from conditions as to residence, oc- 
cupation, travel or place of death. No permit or extra 
premium will be required for military or naval service 
in time of war or in time of peace. This contract is 



POLICY CONDITIONS. 225 

subject to the privileges and conditions recited on the 
subsequent pages hereof." 

Explanation: This clause is perhaps one of the 
most important conditions in a life insurance policy. 
This form has been selected as the proper incontest- 
able clause to be given in any form of policy. Some 
companies place the time, which the policy shall be- 
come incontestable, after two years. The one year 
time limit has been adopted by practically all the well 
established companies. 

Some companies restrict the insured as to travel or 
change of occupation. Some companies require a per- 
mit or charge an extra premium, where the insured en- 
gages in naval or military service in time of war. 

If the insured can secure a policy without these re- 
strictions in just as reliable a company and for practi- 
cally the same premium, why should he accept one 
which contains these restrictions? Is it not good busi- 
ness prudence to secure all you can for your money? 
If the prospective policy holder would study the con- 
ditions contained therein and refuse to accept a policy 
containing any adverse conditions, privileges or re- 
strictions, competition would force the companies to 
omit them. 

308. Statements, Representations and Contract. 

^^This policy together with the application, a copy 
of which is attached hereto, contains the entire con- 
tract between the parties hereto, and all statements 
made by the insured shall, in the absence of fraud, be 
deemed representations and not warranties, and no 
such statement shall avoid the policy or be used as a 
defense to a claim thereunder, unless it be contained 
in the application for the policy." 

Explanation : This paragraph contained in practi- 
cally all the policies, issued by all of the life insurance 
companies, is practically the same and is self-explan- 
atory. 



226 FALLACIES OP LIFE INSURANCE. 

309. Age. 

'^If the a^e of the insured has been misstated the 
amount payable hereunder shall be such as the prem- 
ium paid would have purchased at the correct age." 

Explanation : This paragraph is practically the 
same as set forth in the contracts issued by all com- 
panies and is self-explanatory. 

310. Agent. 

'^No agent is authorized to waive forfeitures or to 
make, modify or discharge contracts, or to extend the 
time for paying a premium." 

This paragraph needs no comment as it is self-ex- 
planatory. 

311. Assignment and Change of Beneficiary. 

''When the right of revocation has been reserved, or 
in case of the death of any beneficiary under either a 
revocable or irrevocable designation, the insured, if 
there be no existing assignment of the policy made as 
herein provided, may, while the policy is in force, 
designate a new beneficiary with or without reserving 
right of revocation by filing written notice thereof at 
the home office of the company, accompanied by the 
policy for suitable endorsement thereon. Such change 
shall take effect upon the endorsement of the same on 
the policy by the company and not before. If any 
beneficiary shall die before the insured, the interest of 
such beneficiary shall vest in the insured." 

Explanation: The rules adopted by practically all 
the life insurance companies are practically the same. 
As they are very explicit they require no special com- 
ment or explanation. 

312.— Suicide. 

''In case of suicide committed while sane or insane 
within one year from the date on which this insurance 



POLICY CONDITIONS. 227 

becomes effective the limit of recovery hereunder shall 
be the premiums paid.'' 

Explanation: The plan of settlement adopted by 
the several life insurance companies are generally lim- 
ited to the first year of the policy. 

In case of suicide some return all the premiums paid, 
some return only the legal reserve, while others re- 
turn nothing. The policy should be selected where the 
policy is, unlimited after one year. 

313. Dividends. 

''This policy shall participate in the surplus of the 
company. The proportion of divisible surplus accru- 
ing on this policy shall be ascertained and distributed 
annually and not otherwise, and at the option of the 
insured shall, on any anniversary, be either (1) paid 
in cash; (2) applied toward the payment of any prem- 
ium or premiums; or, (3) applied to the purchase of 
paid-up additions to the policy; or, (4) left to ac- 
cumulate to the credit of the policy, with interest at 
the rate of 3 per cent, per annum, and payable at the 
maturity of the policy, but withdrawable on any anni- 
versary of the policy. Unless the insured shall elect 
otherwise within three months after the mailing by the 
company of a written notice requiring the election of 
one of the four above options, the dividends will be ap- 
plied to the purchase of paid-up additions (Option 
No. 3) which may be surrendered for cash at any time, 
and the cash value thereof shall not be less than the 
original cash dividend." 

Explanation : The above clause is practically tlie 
same in all forms of participating policies. The reader 
will note that this clause proports to allow the policy- 
holder to participate in the earnings of the company. 

By referring to Chapter XV the reader may deter- 
mine what the insurance companies deem as ''divi- 
dends." By referring to Article 113 additional and 



228 FALLACIES OF LIFE INSURANCE. 

very important information will be found regarding 
dividends. 

The ''dividend system" as practiced by some of the 
life insurance companies is one of the greatest fallacies 
perpetrated upon the policyholders. If the insured 
feels that he MUST receive dividends upon his life in- 
surance policy they should be withdrawn annually in 
cash. Dividends should never be left with the com- 
pany to purchase what is called ''paid-up" additions. 
These are only single premium deals and single prem- 
ium insurance is the most objectionable form of per- 
manent life insurance, 

314. Loan. 

"At any time after three full years' premiums have 
been paid and while this policy is in full force^ the 
company will advance, on pledge of the policy and on 
sole security thereof, an amount which, with interest 
thereon to the end of the current policy year and with 
any unpaid portion of said year's premium, shall, at 
the option of the owner, be equal to or less than the 
cash surrender value at the end of such policy year 
including the cash surrender value of any dividend 
additions, interest on the loan will be at the rate of 
5 per cent., payable annually; if interest is not paid 
when due, it shall be added to the principal and bear 
interest at the same rate. Failure to repay any such 
advance or to pay interest shall not avoid this policy 
unless the total indebtedness hereon to the company 
shall equal its cash surrender value, nor until one 
month after notice of such fact shall have been mailed 
by the company to the last known address of the in- 
sured and of the assignee of record at the home office 
of the company, if any." 

Explanation: The above loan agreement is practi- 
cally the same as issued by all legal reserve companies. 
The greatest material difference being in the insertion 
of what is called a "safety clause," which is being 



POLICY CONDITIONS. 229 

used by many of the younger companies and a few oE 
the older and larger companies. 

Some companies insert their ^^ safety clause'' in a 
separate paragraph where it can clearly be under- 
stood by the insured, while other companies have this 
provision carefully concealed in the loan agreement 
and generally reads as follows : 

^'The company will loan within six months after 
written request." 

This means that the company may defer the making 
of such loan for six months after receiving an applica- 
tion for the loan. Some companies only defer the mak- 
ing of a loan for three months. 

This is a point of great importance to the insured 
as it is only fair to presume that the insured would 
only secure a loan upon his life insurance policy as a 
la^t resort, and where the insured desired to make 
such a loan he would undoubtedly want to secure the 
same on short notice, say within five or ten days, and 
where the insured desired to secure such a loan to 
^'tide him over" some financial difficulty it would be 
a source of great inconvenience to the insured, or per- 
haps a considerable financial loss, to have the com- 
pany defer the making of a loan from three to six 
months. 

As a great number of the largest and best established 
companies do not insert this ^^ safety clause," as it is 
called, the prospective purchaser should not under any 
consideration purchase his insurance of a company 
which reserves the right to defer the making of a loan 
upon the policy, or paying the cash for its surrender, 
for from three to six months. If the prospective pur- 
chasers would refuse to purchase a policy which con- 
tains the ^'safety clause" competition would force the 
companies to discontinue this practice and this would 
not be detrimental in any way to the company. 

Where the insured simply desires to secure a prem- 



230 FALLACIES OF LIFE INSURANCE. 

ium loan upon his policy the company will make such 
a loan immediately upon request. 

315. Cash Value or Non-Forfeitable Privileges. 

^^If any premium shall not be paid on or before the 
date when due, and if there shall be no indebtedness 
to the company, the insurance will automatically con- 
tinue from said due date as term insurance during the 
term, including the grace period, specified in column 
3 of the accompanying table ; or in lieu of such term 
insurance, upon written request made by the insured 
within three months from said due date and surrender 
of the contract the company will, as the insured may 
elect, either issue a contract for the amount of paid-up 
insurance if any, specified in column 2 or pay the cash 
value, if any, specified in column 1. 

If there shall be an indebtedness to the company, 
and if any premium shall not be paid on or before the 
date when due, an amount of insurance, equal to the 
face amount of this contract less the indebtedness, will 
automatically continue from said due date as term in- 
surance, for the term, including the period of grace, 
which the excess of the cash value of the contract, if 
any, over the indebtedness will purchase at the then 
age of the insured, at the single premium rates ac- 
cording to the American Experience Table of Mortal- 
ity, mth 3^ per centum interest. In lieu of such term 
insurance, upon written request made by the insured 
within three months from said due date and surrender 
of the contract, the company will, as the insured may 
elect, either issue a contract for the amount of paid-up 
life insurance which said excess will purchase at the 
then age of the insured, on the mortality and interest 
basis heretofore designated, or pay said excess in cash. 

^^The term insurance and the paid-up insurance 
specified above may be surrendered for cash and paid- 
up insurance shall be subject to cash loans. 

'*If the premiums on this contract shall be paid in 



POLICY CONDITIONS. 231 

semi-annual or quarterly instalments, due allowance 
will be made in computing benefits from the above 
table for that portion of the year's premium paid over 
and above the full number of years' premiums indi- 
cated." 

Explanation: The cash value or non-forfeiture 
clause issued by all legal reserve companies is practi- 
cally the same, as they are in compliance with the 
state laws gOA^erning the same. The above clause is 
very clear and easily understood, therefore does not 
require any particular explanation. 

MISCELLANEOUS POLICY CONDITIONS. 
316. Renewable Term. 

^^The insured may renew this policy for further 
periods of ten (15 or 20) years each without medical 
examination, provided there has been no lapse in the 
payment of premiums, by written notice to the com- 
pany at its home office before the expiration of any 
period of the insurance hereunder and by the payment 
in each year, on the dates above specified, of the prem- 
ium for the age attained by the insured at the begin- 
ning of any such renewal period." 

Explanation : The above renewable clause is fairly 
and properly written. This form of renewable clause 
will apply to a five, ten, fifteen or twenty year term 
policy. 

The renewable term form of policy may be justly 
considered a form of permanent insurance, provided 
the insured renews the same as an ordinary life policy 
before the age limit of the company is reached for this 
form of policy. 

The prospective purchaser of a renewable term 
should be very particular to note that the policy may 
be renewed WITHOUT a medical examination, the 
same as above. Some companies are issuing a form of 
policy purporting to be a renewable term policy, which 



232 FALLACIES OF LIFE INSURANCE. 

is a gross misrepresentation, because the renewable 
clause states as follows: 'Hhis policy will be renewed 
at the end of the period for which it is written, SUB- 
JECT TO EVIDENCE OF GOOD HEALTH SATIS- 
FACTORY TO THE COMPANY," i. e. the company 
will renew the policy provided the insured is in good 
health, and he would be required to pass a re-medical 
examination in order to have the policy renewed. 

If the insured can pass a satisfactory medical ex- 
amination he can secure insurance from any com- 
pany. Therefore the policy containing the above ob- 
jectionable clause is NOT a renewable term policy, but 
simply a straight term policy and should not be pur- 
chased. 

317. Convertible. 

^^The insured, provided there has been no lapse in 
the payment of premiums hereunder, may, on any an- 
niversary, surrender this policy and, on written ap- 
plication therefor to the company at its home office, 
exchange it, without medical examination, for a par- 
ticipating life or endowment policy of not greater 
amount upon the form then in use by the company and 
at the then rate for age attained. Or, at any time 
within five years, provided there has been no lapse in 
the payment of premiums hereunder, the insured may 
surrender this policy and, on written application there- 
for change it, without medical examination, for a par- 
ticipating life or endowment policy of the same 
amount, as of the original date of issue, by the pay- 
ment of the difference in premiums with interest." 

Explanation : This convertible clause is properly 
written. "Where a policy is written on the convertible 
term plan it may be exchanged on any anniversary of 
its date, for a death claim of an equal amount, written 
on any form which requires a higher premium. 

Should this form of policy be purchased it should 
be exchanged for an ordinary life form whenever the 



POLICY CONDITIONS. 233 

insured desires to secure permanent insurance. In- 
sured should never convert this form of policy by pay- 
ing the difference in premiums for the years carried in 
order to secure the insurance at the premium for his 
younger age, as the difference in the premiums and its 
interest worth will cost the insured a great deal more 
than were he to pay the premium for his attained age. 

318. Total Disability. 

^^ After one full annual premium shall have been paid 
upon this contract and before a default in the payment 
of any subsequent premium, if the insured shall furnish 
satisfactory proof that he has since such payment be- 
come wholly disabled by bodily injuries or disease and 
will be permanently, continuously and wholly pre- 
vented thereby for life from pursuing any and all 
gainful occupations, the company by an endorsement 
in writing hereon will continue the insurance in force 
during such disability without payment of premiums 
and the values in the table on page 2 shall increase in 
the same manner as if the premiums were paid by the 
insured. 

^'But the foregoing may be modified as hereinafter 
provided if such disability shall commence before the 
insured shall have attained the age of sixty : 

^'Upon the written request of the insured and of 
the assignee and beneficiary, if any, after proof as 
aforesaid, the company will pay in any contract year 
during such total and permanent disability, if there 
shall be no indebtedness against the contract, not more 
than one twentieth of the amount originally insured 
as stated on the first page ; or, if there shall be an in- 
debtedness, not more than one-twentieth of the dif- 
ference between such indebtedness and the amount 
originally insured. Each such payment shall reduce 
to that extent the amount of insurance then in force 
and in the proportion of such payments to the amount 
originally insured shall reduce the values set forth in 



234 FALLACIES OP LIFE INSURANCE. 

the table on page 2. And if and when the payments 
so made shall together with any indebtedness to the 
company equal the amount originally insured, the com- 
pany's obligation under the contract shall be fully 
satisfied and discharged. 

'^In addition to or independently of all other causes 
of total and permanent disability the company will 
consider the entire and irrecoverable loss of the sight 
of both eyes or the severance of both hands at or above 
the wrists or of both feet at or above the ankles or of 
one entire hand and one entire foot as total and perm- 
anent disability within the meaning of this provision. 

''On any anniversary of this contract this provision 
may be canceled by the insured, in which event the 
subsequent annual premiums will be reduced 25 cents 
for each $1,000 of insurance hereunder and such reduc- 
tion shall be endorsed hereon." 

Explanation : The above total disability clause is 
fairly and equitably written. It is also very liberal 
when all the conditions are taken into consideration. 

The prospective purchaser should not allow a too 
liberal disability clause to be the inducement for the 
purchase of an adverse policy or the payment of an 
excessive rate of premium. 

The total disability clause is not considered by the 
insurance company, as much consequence, as evidenced 
by the, fact that were the purchaser to eliminate the 
disability clause in the policy, the premiums would not 
be reduced to exceed 50 cents for a $1,000 death claim, 
yet if the purchaser can secure an equitable policy at 
a reasonable premium from a reliable and well estab- 
lished company containing a total disability clause as 
above, such policy should be given the preference by 
all means. 



NOTED OPINIONS. 235 



CHAPTER XV 

NOTED OPINIONS 

319. Opinion of Commissioner of Internal Revenue, 
Royal E. Cabell. (T. D. 1743.) 

Special Excise Tax on Corporations. 

Dividends declared by insurance companies are the 
dividends referred to in Section 38, act of August 5, 
1909, as not being deductible from gross income, and 
when such dividends are applied to the payment of 
renewal premiums, to shorten the endowment or prem- 
ium paying period, to purchase paid-up additions and 
annuities, etc., they must be included in and accounted 
for as income. 

TREASURY DEPARTMENT, 

OFFICE OF COMMISSIONER OF INTERNAL 

REVENUE, 

Washington, D. C, December 16, 1911. 
Sir : Section 38 of the act of August 5, 1909, pro- 
vides that every insurance company now or hereafter 
organized under the laws of the United States, or of 
any State or Territory of the United States, or under 
the acts of Congress applicable to Alaska or the Dis- 
trict of Columbia, or now or hereafter organized 
under the laws of any foreign country and engaged in 
business in any State or Territory of the United States 
or in Alaska or in the District of Columbia, shall be 
subject to pay annually a special excise tax with re- 
spect to the carrying on or doing business by such 
insurance company equivalent to 1 per cent, upon the 
entire net income over and above $5,000 received by 
it from all sources during such year. The act referred 
to provides that such net income shall be ascertained 
by deducting from gross income received within the 



236 FALLACIES OF LIFE INSURANCE. 

year all sources (first) all the ordinary and necessary 
expenses actually paid within the year out of income 
in the maintenance and operation of its business and 
properties, including all charges, such as rentals or 
franchise payments, required to be made as a condition 
to the continued use or possession of property; (sec- 
ond), all losses actually sustained within the year and 
not compensated by insurance or otherwise, including 
a reasonable allowance for depreciation of property, if 
any, and, in the case of insurance companies, the sums 
other than dividends paid within the year on policy 
and annuity contracts, etc. 

In the administration of this law the questions of 
what was meant by the use of the word '^dividend"- 
and the status of dividends declared by insurance com- 
panies have arisen. These questions have been receiv- 
ing most careful consideration in this office for the past 
six months. Many hearings have been had on this sub- 
ject, at which have appeared officers and counsel re- 
presenting nearly all of the insurance companies in- 
terested. In addition to elaborate arguments, a num- 
ber of briefs have been filed and this office has on its 
own account made careful and painstaking investiga- 
tions. 

Reduced to final analysis, the contentions of the 
various companies are chiefly two : 

First. That dividends declared by mutual and par- 
ticipating companies are not dividends in the com- 
mercial sense of the word but are simply refunds to 
the policyholder of a portion of the overcharge col- 
lected from such policyholder at the time the annual 
premium of the policy contract is collected, which 
overcharge is merely held in trust by the company 
issuing the policy, and annually or at stated periods 
all, or a portion thereof, is returned to the person 
holding the policy. 

A careful consideration of the language used by 
Congress on this subject; a consideration of the pro- 



NOTED OPINIONS. 237 

visions in the policy contracts relating to dividends; 
the statements of the insurance companies to their 
policyholders; the statements made by the insurance 
companies to the public generally through their au- 
thorized advertisements, their literature, and by their 
agents; and the sworn reports, of the insurance com- 
panies made to the various State authorities show 
that this contention is untenable. 

The language in the various policies differs a little, 
but the contract itself sets out specifically that the 
policy shall entitle the holder annually or at stated 
periods to a dividend which shall be the distributive 
share of the policy in the surplus of the company, the 
amount thereof being fixed by the board of directors 
or in some other designated method. 

In the authorized literature sent out by each of the 
various companies the amount of the dividend is in 
general made the most prominent feature, and, as is a 
matter of common knowledge of every person who has 
reached the age of maturity, each and every one of the 
agents of these companies presents a mass of alleged 
facts and figures showing the financial benefits to be 
derived by taking a policy in any given company on 
account of its large annual surplus and the dividend to 
be declared on the policy as a result thereof. In fact, 
in the current magazines, street-car advertisements, 
etc., one is confronted with allegations set forth in 
attractive type of the dividends earned and declared 
on the policies of one or another of these companies. 

In all of the policy contracts and in the literature 
and representations of the agents and officers of the 
respective companies the amounts thus paid to • the 
policy holder are designated dividends, are treated as 
dividends so far as appears both by the companies and 
the policy holders receiving them, and an examination 
of the sworn reports furnished by these insurance com- 
panies to the various State officers discloses the fact 
that these amounts are still called dividends and 



238 FALLACIES OF LIFE INSURANCE. 

treated as dividends, and in the face of these facts it 
becomes an impossibility for this office to rule that 
such dividends should be considered under any other 
designation or that the amounts so paid should be de- 
ductible from gross income in making the returns of 
annual net income. 

It was vigorously contended by counsel, represent- 
ing certain of these companies, that it was necessary 
at the outset to disregard entirely the policy contracts, 
the published literature, the representations of officers 
and agents, the sworn returns to State authorities, and 
to consider the proposition only after these items had 
been eliminated; that owing to the exigencies of busi- 
ness and the competition of insurance companies it 
was necessary, in order to secure new business, to con- 
vince the prospective policy holder of the desirability 
of the same and that this commercial necessity, had 
resulted in the companies making misrepresentations 
of facts as to dividends to their prospective purchas- 
ers of insurance, and that names and designations hav- 
ing a single specific meaning in the commercial world, 
and which were therefore attractive to prospective 
policy holders, had been adopted to represent transac- 
tions which they now hold are entirely different from 
what their name implies and represents, and from that 
which the policy holder himself believed he was re- 
ceiving, and that business necessities had caused a 
continuance of these misnomers. It was represented 
that, in fact, there were no dividends, but merely a 
refund of overcharges, which, for reasons above stated, 
were usually referred to as dividends. 

It appears, however, from the investigations of the 
books themselves that in many cases the earnings of 
the companies from previous investment and holdings 
are nearly, if not quite, as large as the amounts which 
are annually distributed as dividends, and while it 
may be true that the dividends in whole or in part 
might be distributed from premium rather than from 



NOTED OPINIONS. 239 

those earnings, it does not appear that a separation of 
sources of income is made for the purpose of ascer- 
taining the funds available for dividends. The in- 
sured is not promised a refund, but a participation in 
the surplus or profits is promised and the plea that the 
dividend declared is a refund of a portion of the prem- 
ium heretofore paid, rather than a distribution of the 
actual surplus of a company derived from all sources, 
does not appear to be consistent. 

It does not appear, therefore, that the facts warrant 
the contention of the counsel that dividends are re- 
funds of premium payments, but on the contrary it 
appears that most of the companies are in a position 
to declare a dividend which will conform to the com- 
mercial definition of dividends urged by counsel as 
the correct definition. 

The language of Congress relative to deductions 
from gross income is as follows: ^^And in the case of 
insurance companies the sums other than dividends 
paid within the year on policy and annuity contracts," 
and there is no clearer or more reasonable rule of con- 
struction than that every clause or word of a law 
should be presumed to have been intended to have 
some force and effect. 

When all the facts are borne in mind and it is re- 
membered that such facts were all before Congress at 
the time the specific language was adopted that an in- 
surance company should be entitled to deduct ^'the 
sums other than dividends paid within the year on 
policy and annuity contracts and the net additions, if 
any, required by law to be made within the year the 
reserve funds,'' it is clear that by '^dividends'' Con- 
gress had in mind the same thing that the insurance 
companies themselves have been designating as divi- 
dends, and that whether such dividends are dividends 
in the commercial sense or not they constitute what 
Congress specifically prohibited from being deducted. 

Second. The second contention, and the one most 



240 FALLACIES OF LIFE INSURANCE. 

vigorously advanced by many of the companies, is 
that granting that dividends paid to policy holders in 
cash are dividends within the intent of the statute, 
when such dividends are applied to (a) the payment 
of renewal premiums; (b) applied to shorten the en- 
dowment or premium paying period; (c) applied to 
purchase paid-up additions and annuities, they are not 
dividends but refunds applied as stated. The conten- 
tion is that the company does not actually receive the 
money and that it is not, therefore, to be taken up in 
the income accounts, but that owing to provisions of 
local statutes over which they have no control they 
are forced against their will to take up these items 
on their ledger accounts and on their sworn statements 
as income. 

A careful consideration would appear to show the 
complete fallacy of this contention. It is not disputed 
that when the dividends shall have been declared and 
the ratable distribution determined by the duly con- 
stituted authority of the company, the title to the 
ratable share is thereby vested in the policy holder. 
Such being the fact, the company is thereafter the 
mere custodian of the amount of dividend thus de- 
clared and agrees as agent to make disposition of such 
amount in accordance with the direction of the o^vner 
thereof. This is specifically set out in the policy con- 
tracts, and the disposition of the dividend is deter- 
mined solely by the election of the policy holder him- 
self. 

The insurance company declares a dividend and the 
policy contract gives the insured, in whose favor the 
dividend is declared, the absolute direction of its 
disposal. He may direct that it be paid to him in cash 
or he may direct its disposal as hereinbefore stated, 
by the company, which acts as the agent of the policy 
holder in applying the dividend as he may direct. The 
dividend having been regularly declared, the amount 
belonging to each policy holder is entirely within his 



NOTED OPINIONS. 241 

control in accordance with the terms of his contract, 
and he may and must direct its disposal as stated. 
For purpose of illustration, suppose a policy holder 
elects to direct the disposition of his dividend to the 
part payment of his next renewal premium. The com- 
pany contends that such an election on the part of the 
policy holder is a rebate on the part of the company. 
When we consider, however, that the title to this divi- 
dend has already vested in the policy holder, it would 
appear that there is no abatement of premium, but 
that the policy holder who pays a continuing annual 
premium, remits to the company a certain portion of 
that premium in cash and directs that the company 
take the amount of dividend due and payable to him 
and add it to the amount remitted in cash in payment 
of the premium then due to the company. The policy 
contracts of the companies themselves, the receipts for 
premium payments, and the whole transaction appears 
to establish this beyond any question. 

The contention that the company does not receive the 
amount of money belonging to the policy holder which 
is in the physical possession of the company, and 
which the policy holder directs to be taken and added 
to the amount which he remits and thus pay his prem- 
ium liability, is, moreover, not acceptable as an ac- 
counting proposition. 

Nor can this office concur in the proposition that 
the company can, at the- direction of the owner of a 
sum of money in its custody, take such sum and make 
a part payment on an obligation therewith and then 
contend that out of its liberality it has abated a por- 
tion of the obligation exactly equal to the amount of 
money in its possession thus applied at the direction of 
the policy holder. 

The second and third allegations as to disposition of 
dividends declared fall identically within the reasons 
set forth, and a further detailed discussion thereof 
does not appear necessary^ It appears clear, therefore. 



242 FALLACIES OP LIFE INSURANCE. 

that under the language of the law the dividends ex- 
cepted from deductions are the amounts disbursed an- 
nually by the various companies as dividends and that 
after the dividends are once declared, and by the direc- 
tion of the policy holder are transferred back to the 
company for the purpose of paying premiums, purchas- 
ing additional insurance, or shortening the term of in- 
surance, the amount of dividends so retransferred to 
the company constitutes income in every sense identi- 
cally as though the actual cash was paid therefor, and 
such items shall be so treated and accounted for. The 
contention of the insurance companies that their ledger 
accounts and sworn statements are untrue and incor- 
rect as to the item of dividends can not be accepted.^ 

Certain decisions of State courts appear to lend 
color to the position assumed by the various companies. 
It should be borne in mind, however, that the various 
statutes construed or referred to in these decisions 
differ both in language and intent from the statute 
now under consideration, and without raising the ques- 
tion as to the extent to which these various State de- 
cisions are binding, it is clear from a careful consid- 
eration thereof that they do not furnish a safe guide 
to follow in determining the intent of Congress as evi- 
dence by the language now under consideration. 

The various agents will, therefore, continue to make 
up the returns from the ledger accounts of the insur- 
ance companies, recommend disallowance of any de- 
duction claimed on account of dividends, and report 
as items of income all dividends declared by insurance 
companies and repaid to the insurance companies by 
direction of the owner thereof, even though the physi- 
cal possession of such dividends shall have continued 
with the company. 

The matter of amortization of bonds has already 
been the subject of an official ruling. The various 
items of depreciation claims and of certain questions 
relative to reserves are not sufficiently general for a 



NOTED OPINIONS. 243 

ruling to be made thereon, and such question will, for 
the present, be made the subject of individual consid- 
eration. 

Respectfully, 

ROYAL E. CABELL, 

Commissioner. 

MR. JOHN W. SINSEL, 

Internal Revenue Agent, New York. 

320. Extract of Opinion of Judge McCormick, in Mer- 
chants Life Association vs. Yoakum, 98 Fed. 
Rep., page 269-270. 

'^In the quotation which we have made from the 

opinion of Judge in the case, 

we have seen that he alludes to the fact that in 
money is received from the insurance com- 
panies in payment of losses to the extent of only a 
small per cent of the premiums received by them, and, 
often, then, as the records of the courts of the state 
will show, at the end of a long, tedious, and expen- 
sive lawsuit. 

^'It must be manifest to the most casual observation 
that the parties to these insurance contracts and to 
such a controversy are unequally matched. 

^'It is human nature and human experience that the 
stronger will use his strength. He may piously declare 
his benovolent intentions and disclaim any purpose to 
profit by his power, but he will use it none the less. 

''Without the aid of a legal fiction, we cannot say 
or think that the minds of these contracting parties 
do or can ever meet. One is a mere legislative thought, 
a legal, artificial entity, invisible, endowed with im- 
mortality, and almost superhuman poAvers of organiza- 
tion and delegated activities, and infinite capacity for 
expansion and receiving of tribute. It can act only 
through agents. For the exercise of its controlling 
powers, it is able to secure, and constantly retain, the 



244 FALLACIES OF LIFE INSURANCE. 

highest order of talent in every department of its or- 
ganization. 

''In a world-wide field of minute operations these 
governing agents, wherever located, must of necessity, 
be practically unapproachable by the vast concourse 
of parties with whom the invisible principal deals. A 
hierarchy results. Of this hierarchy the lowest rank, 
in prodigious swarm, fills the land. The scope of 
their agency is limited with marvelous skill. 

''Armed with longer or shorter catechisms, and a 
form of covenant devised with consummate ingenuity, 
one of these inspired special agents finds the Hays 
County farmer at his plow-tail. '* * * 

"With the aid of a medical examiner appointed by 
the insurance company, the special agent opens ancl 
explains the questions in the catechism, and reduces 
to writing in due form (as these experts explain and 
declare) the required answers — 128 more or less — each 
of which answers as thus written by the agent and 
the medical examiner, this unlettered novice is re- 
quired to adopt and warrant to be true, without any 
regard to the answers as actually spoken by him or to 
the facts patent to the sight of these special agents, 
whose auditory and optic nerves have been so par- 
alyzed by the limitation on the scope of the agency 
that they do not connect with the mind of the mystic 
principal. 

"These paralyzed agents are the only human organs 
through which the insurer corporation expresses itself 
to the mind of the insured. Where the strict literal 
warranty doctrine obtains, the wonder is not that a 
breach of a contract, thus written and construed, can 
often be established, but that such a contract so con- 
structed can ever be enforced after the death, a,nd 
hence without the testimony, of the insured. 

"The subject is a large one. It is one of peculiarly 
vital public interest. It challenges legislative atten- 
tion. The foregoing examples, which we have taken 



NOTED OPINIONS. 245 

from the record in this case and from the * * * 
Reports, are by no means exceptional in that state, but 
are representative. It seems to us that the state legis- 
lation drawn in question by this assignment is not in 
conflict with the fourteenth amendment to, or any 
other provision of, the constitution. It is not simply 
a statute imposing a penalty on life or health insur- 
ance companies for failing to pay certain debts, but 
is one to enforce reasonable regulations and conditions 
on which such companies are permitted to do busi- 
ness. ^ ^ ^ The purpose of this statute is not to 
compel the payment of debts. Life and health insur- 
ance companies do not usually neglect or defer the 
payment of their admitted debts. They generally ad- 
vertise themselves as having a large accumulation of 
surplus revenue, and as being ready to pay, as soon as 
it matures, whatever debt they owe. The obvious pur- 
pose of the act is to secure a righteous degree of care 
in righting policies of insurance, so that the immortal 
insurer will not receive premiums from an honest re- 
cipient of one of its policies which does not bind it to 
meet the loss that he bargains it shall meet, and in 
consideration for which he parts with his money while 
he is alive and able to make earnings, that he may, to 
the extent stipulated, protect his family or his credit- 
ors against the contingency of his death, which must 
occur. To enforce the exercise of this righteous care 
on the part of the very strong in contracting with the 
weaker and less learned, and in conducting humanely 
this peculiar business that reaches so often across the 
graves of the insured to the homes of afflicted depend- 
ents, so that the insurers will not receive premiums 
from honest parties who the contracts as written do 
not insure, would seem to be within the legislative 
power." 



246 FALLACIES OP LIFE INSURANCE. 



CHAPTER XVI 

STATE LAWS GOVERNING LIFE 
INSURANCE COMPANIES 

321. New York Non-Forfeiture Law. 

A law was passed, which went into effect on Janu- 
ary 1, 1880, to provide that should a policy lapse 
through non-payment of premiums, a surrender value 
could be claimed at any time within six months, such 
value to be either paid-up insurance or extended in- 
surance as might be stipulated in the policy contract. 
Verbal changes were made when the insurance laws 
of 1892 were put in force, but these changes did not 
effect the values to be given or the conditions on which 
such values could be claimed. The law at present in 
force reads as follows : 

STATUTES OF THE STATE OF NEW YORK. 

Laws of 1892. 

Chapter 690, Article 2, Section 88. 

Surrender Value of Lapsed or Forfeited Policies. — 

Whenever any policy of life insurance issued after 
January first eighteen hundred and eighty, by any 
domestic life insurance corporation after being in 
force three full years shall by its terms, lapse or be- 
come forfeited for non-payment of any premium or any 
note given for a premium or loan made in cash on such 
policy as security, or of any interest on such note or 
loan, the reserve on such policy computed according 
to the American table of mortality at the rate of four 
and one-half per cent, per annum shall, on demand 
made, with surrender of the policy within six months 



' STATE LAWS. 247 

after such lapse or forfeiture, be taken as a single 
premium of life insurance at the published rates of the 
corporation at the time the policy was issued, and shall 
be applied, as shall have been agreed in the applica- 
tion or policy, either to continue the insurance of the 
policy in force at its full amount or as long as such 
single premium will purchase temporary insurance for 
that amount, at the age of the insured at the time of 
lapse or forfeiture, or to purchase upon the same life 
at the same age paid-up insurance payable at the same 
time and under the same conditions, except as to pay- 
ment of premiums, as the original policy. If no such 
agreement be expressed in the application or policy 
such single premium may be applied in either of the 
modes above specified at the option of the owner of the 
policy, notice of such option to be contained in the de- 
mand hereinbefore required to be made to prevent the 
forfeiture of the policy. 

The reserve hereinbefore specified shall include divi- 
dend additions calculated at the date of the failure to 
make any of the payments above described according 
to the American experience table of mortality with in- 
terest at, the rate of four and one-half per cent, per 
annum after deducting any indebtedness of the in- 
sured on account of any annual or semi-annual or 
quarterly premium then due, and any loan made in 
cash on such policy, evidence of which is acknowl- 
edged by the insured in writing. 

The net value of the insurance given for such single 
premium under this section computed by the standard 
of the state, shall in no case be less than two-thirds of 
the entire reserve computed according to the rule pre- 
scribed in this section after deducting the indebted- 
ness as specified; but such insurance shall not partici- 
pate in the profits of the corporation. 

If the reserve upon any endowment policy applied 
according to the provisions of this section as single 
premium of temporary insurance be more than suffi- 



248 FALLACIES OF LIFE INSURANCE. 

cient to continue the insurance to end of the endow- 
ment term named in the policy, and if the insured sur- 
vive that term, the excess shall be paid in cash at the 
end of such term, on the conditions on which the 
original policy was issued. 

This section shall not apply to any case where the 
provisions of the section are specifically waived in the 
application and notice of such waiver is written or 
printed in red ink on the margin of the face of the 
policy when issued. 

322. Massachusetts Non-Forfeiture Laws. 

In 1861 the Legislature of Massachusetts adopted 
a non-forfeiture law to protect the interest of the 
policy holder against the heavy loss sustained by 
lapsation of their policies ; frequent changes have 
been made in the old Massachussetts law, and as such 
changes do not become retroactive, it follows that poli- 
cies once issued remain at all times under the law in 
force at the date of their issue. Apart therefore from 
the historical value of the various laws and the changes 
therein, the different laws have also a practical value, 
as they still apply to existing policy contracts. 

The text of the three different non-forfeiture laws is 
therefore given in full, first the original law, second the 
codification of 1887, and third the existing law. Notes 
are added as to the minor changes which have been 
made : 

THE MASSACHUSETTS NON-FOEFEITURE LAW. 

Approved April 10, 1861. 

Section 1. No policy of insurance on life hereafter 
issued by any company chartered by the authority 
of this commonwealth shall be forfeited or become void 
by the non-payment of premium thereon, any further 
than regards the right of the party insured therein 
to have it continued in force beyond a certain period, 



STATE LAWS. 249 

to be determined as follows as to-wit : The net value 
of the policy when the premium becomes due and is 
not paid, shall be assertained according to the ^'Com- 
bined Experience'' or '^ Actuaries'' rate of mortality, 
with interest at four per centum per annum. After de- 
ducting from such net value any indebtedness to the 
company or notes held by the company against the in- 
sured, which note if given for premiums, shall then 
be canceled, four-fifths of what remains shall be con- 
sidered as net single premium of temporary insurance, 
and the term for which it will insure shall be determ- 
ined according to the age of the party at the time of 
the lapse of the premium and the assumptions of mor- 
tality and interest aforesaid. Section 2. If the death 
of the party occur within the term of temporary in- 
surance covered by the value of the policy, as deter- 
mined in the previous section, and if no condition of 
the insurance other than the payment of premium 
shall have been violated by the insured, the company 
shall be bound to pay the amount of the policy the 
same as if there had been no lapse of the premium, 
anything in the policy to the contrary notwithstand- 
ing; provided, however, that notice of the claim and 
proof of the death shall be submitted to the company 
within ninety days after the decease; and provided, 
also, that the company shall have the right to deduct 
from the amount insured in the policy the amount at 
six per cent, per annum of the premiums which have 
been forborne at the date of his death. 

MASSACHUSETTS NON-FOEFEITUEE LAW. 

Codification of 1887. 

Section 76. All policies hitherto issued by any do- 
mestic life insurance company shall be subject to the 
provisions of law applicable and in force at the date 
of such issue. No policy of life or endowment assur* 
ance hereafter issued by any such company shall be- 



250 FALLACIES OF LIFE INSURANCE. 

come forfeited or void for non-payment of premium 
after two full annual premiums, in cash or note or 
both, have been paid thereon; but in case of default 
in the payment of any subsequent premium, then, with- 
out any further stipulation or act, such policy shall 
be binding upon the company for the amount of paid- 
up insurance which the then net value of the policy 
and all dividend additions thereon, computed by the 
rule of Section 11, less any indebtedness to the com- 
pany on account of said policy, and less the surrender 
charge provided herein will purchase at a net single 
premium for life or endowment insurance maturing 
or terminating at the time and in the manner provided 
in the original policy contract, and such default shall 
not change or affect the conditions or terms of the 
policy, except as regards the payment of premiums 
and the amount payable thereon. Said surrender 
charge shall be eight per cent, of the insurance value 
of the policy at the date of default, which insurance 
value is the present value of all the normal future 
yearly costs of insurance which by its terms said policy 
is exposed to pay in case of its continuance, computed 
upon the rate of mortality and interest assumed in 
Section 11. Every such policy, after the payment of 
two full annual premiums thereon, shall have a sur- 
render value which shall be its net value, less the sur- 
render charge, and less any indebtedness to the com- 
pany on account of the said policy, and its holder may, 
upon any subsequent anniversary of its issue, sur- 
render the same and claim and recover from the com- 
pany such surrender value in cash ; Provided that from 
the surrender value of all endowment policies the com- 
pany may deduct five per cent. On policies of pruden- 
tial or industrial insurance on which the weekly prem- 
iums are not more than 50 cents each the surrender 
value in all cases shall be payable in cash. Upon sur- 
render, on any anniversary of its issue, of a policy 
which has become paid-up after the payment of two 



STATE LAWS. 251 

full annual premiums by force of the statute upon de- 
fault in payment of premium, the holder shall be en- 
titled to its net value payable in cash; Provided that 
from such net value of all endowment policies the com- 
pany may deduct five per cent. But no surrender of 
a policy shall be made without the written assent of 
the person to whom the policy is made payable. Any 
condition or stipulation in the policy or elsewhere, con- 
trary to the provisions of this section and any waiver 
of such provisions by the assured, shall be void. 

The Actuaries' Rate of Mortality with four per cent, 
interest is given as the basis of computation of net 
value in Section 11 of the Codification of 1887. 

In 1894 a change in the above law was made so 
that it might apply, in accordance with the practices 
of companies, to policies taken by single premiums. 
In 1896 the clause ''provided that from the surrender 
value of all endowment policies the company may de- 
duct 5 per cent.'' was struck out; companies had not 
availed themselves of the right to make the deduction. 
In 1900 the entire law was changed, and the following 
is now in force : 

MASSACHUSSETS NON-FORFEITURE LAW. 

Chapter 118, Section 76, Revised Laws. 

Paid-up and Cash Surrender Values. — All policies 
issued prior to the first day of January in the year 
nineteen hundred and one by any domestic company 
shall be subject to the provisions of law limiting for- 
feiture which are applicable and in force at the date of 
their issue. No policy of life or endowment insurance 
issued by any such company after the thirty-first day 
of December in the year nineteen hundred shall be- 
come forfeit or void for non-payment of premium after 
three full annual premiums have been paid thereon; 
but in case of default in the payment of any subse- 
quent premium, then without any further stipulation 



252 FALLACIES OP LIFE INSURANCE. 

or act such policy shall be binding upon the company 
for the amount of paid-up insurance which the then 
net value of the policy and all dividend additions 
thereon, computed by the rule of Section 11, less any 
indebtedness to the company on account of said policy, 
and less the surrender charge provided herein, will 
purchase as a net single premium for life or endow- 
ment insurance maturing or terminating at the time 
and in the manner provided in the original policy con- 
tract, and such default shall not change or affect the 
conditions or terms of the policy, except as regards the 
payments of premiums and the amount payable there- 
on. Said surrender charge, unless fl:?:ed at a smaller 
rate by the policy, shall be five per cent, of the present 
value of the future net premiums at the date of de- 
fault, which by its terms said policy is exposed to pay 
in case of its continuance, computed upon the rate of 
mortality and interest assumed in Section 11. But any 
company may contract with its policy holders to fur- 
nish, in lieu of the paid up insurance provided for in 
this section, any other form of life insurance lawful 
in this commonwealth, of not less value. Every such 
paid-up policy shall have a cash surrender value, which 
shall be its net value, less any indebtedness to the com- 
pany on account of said policy, and every policy which 
by its own terms has become paid-up shall have a cash 
surrender value, which shall be its net value, less five 
per cent, of one net premium, and the holder of any 
paid-up policy may upon any anniversary of its issue 
surrender the same and claim and recover from the 
company such surrender value in cash. But no sur- 
render of a policy shall be made without the written 
assent of the person to whom the policy is made pay- 
able. On policies of prudential or industrial insurance 
on which the weekly premiums are not more than 50 
cents each the surrender value shall in all cases be pay- 
able in cash, which shall be a legal claim for not more 
than two years from the date of lapse. Any condi- 



STATE LAWS. 253 

tion or stipulation in the policy or elsewhere which is 
contrary to the provisions of this section and any 
waiver of such provisions by the insured, shall be void. 

The Massachusetts law does not require the sur- 
render of the policy, but under the New York law the 
policy must be surrendered within six months after 
the date of lapse in order that the specified values may 
be obtained. The value under the Massachusetts law 
is automatically carried forward to the credit of the 
policy holder, and awaits him at such time as he may 
claim it. When the contract calls for the surrender 
of the policy within a specified period, and this re- 
quirement does not conflict with the law of the State, 
then if the insured does not surrender the policy and 
claim the value all his right will cease at the end of 
the stipulated time. In case no time is stipulated 
within which the surrender should be made and the 
contract contains a provision that in case of default in 
the payment of any premium when due, all payments 
are to be forfeited (a provision which would be bind- 
ing under the laws of several of the States), then the 
surrender should be made before such default occurs. 

A decision to this effect was made by the Supreme 
Court of Pennsylvania in 1888 in Smith vs. National 
Life Insurance Company. The practice is however, be- 
coming more and more common for companies to grant 
automatic non-forfeiture privileges whereby the in- 
sured obtains a reasonable value if he should discon- 
tinue payment of premium, this value being allocated 
to him whether he claims it or not. The trend of legis- 
lation seems to be in the same direction. 

323. Indiana Non-Forfeiture Law. 

Approved July 1, 1909. 

Chapter 5, Section 125. 

WHAT THE POLICY SHALL PROVIDE. 

From and after July 1, 1909, no policy of life in- 
surance shall be issued or delivered in this state or be 



254 FALLACIES OF LIFE INSURANCE. 

issued by a life insurance company organized under 
the laws of this state, unless the same shall provide the 
following : 

(1) That all premiums shall be payable in advance, 
either at the home office of the company or to an agent 
of the company, upon delivery of a receipt signed by 
one or more of the officers who shall be designated in 
the policy. 

(2) For a grace of not less than thirty days for 
payment of every premium after the first year, which 
may be subject to an interest charge, during which 
period the insurance shall continue in force ; provided, 
that if the insured shall die within such period of 
grace the unpaid premium for the current policy year 
may be deducted in any settlement under the policy. 

(3) That the policy, together with the application 
therefor, a copy of which application shall be attached 
to the policy and made a part thereof, shall constitute 
the entire contract between the parties and shall be 
incontestable after not more than two years from its 
date, except for non-payment of premiums and except 
for violation of the conditions of the policy relating 
to naval and military service in time of war, 

(4) That if the age of the insured has been under- 
stated, the amount payable under the policy shall be 
such as the premium would have purchased at the cor- 
rect age. 

(5) That all statements made by the insured in the 
application shall, in the absence of fraud, be deemed 
representations and not warranties. 

(6) That the policy shall participate in the surplus 
of the company as apportioned by the board of direc- 
tors of the company, and that, beginning not later than 
the end of the fifth year, the company will determine 
and account for the portion of the divisible surplus so 
ascertained accruing on the policy, and that the owner 
of the policy, shall have the right to have the cur- 
rent dividends arising from such participation paid in 



STATE LAWS. 255 

cash, and that at periods of not more than five years, 
such accounting and payment at the option of the 
policy holder shall be had. The owner of the policy 
may elect to take any of the other dividend options 
in the policy. If the owner of the policy shall not elect 
any of the other dividend options in the policy, the ap- 
portioned dividends shall be held to the credit of the 
policy and be payable in cash at maturity of the 
policy or be withdrawable in cash at any anniversary 
of its date : Provided, however, if the policy shall 
contain a provision for an apportionment of the sur- 
plus at the end of the first policy year and annually 
thereafter, then in that event, said policy may provide 
that each dividend shall be paid subject to the pay- 
ment of the premium of the next ensuing year. This 
provision shall not be required in non-participating 
policies. 

(7) A table showing in figures the loan values and 
the cash, paid-up and extended insurance options upon 
surrender or available under the policy each year, 
upon default in premium payment, during at least the 
first twenty years of the policy, beginning not later 
than the end of the third policy year, which values 
shall be equal to the full reserve on the policy, less 
not to exceed two and one-half percentum of the sum 
insured; following this table there shall be a clause 
specifying the mortality table and rate of interest 
adopted for computing the reserve and specifying the 
basis for the values and options after the period cov- 
ered by the table. This provision shall not apply to 
term policies nor to any form of paid-up insurance is- 
sued or granted in exchange for lapsed or surrendered 
policies. 

(8) Policies issued by companies doing business in 
this state may provide for not more than one year 
preliminary term insurance, by incorporating therein 
the following clause immediately following the table 
of options and statement of basis therefor: ''The first 



256 FALLACIES OP LIFE INSURANCE. 

year's insurance under this policy is term insurance, 
purchased by the whole or part of the premium to be 
received during the first policy year and the policy 
shall be valued according to its terms and the laws 
of the State of INDIANA." 

(9) That after three full year's premiums shall 
have been paid, the company, at any time, while the 
policy is in force, will loan, on the execution of a 
proper assignment of the policy, and on the sole secur- 
ity thereof, at a specified rate of interest, a sum equal 
to, or at the option of the insured, less than the 
amount stated in the table of options to be loaned 
at the end of the current policy year plus the value 
of the reserve on any dividend additions to the pol- 
icy, and that the company will deduct from such loan 
value any existing indebtedness on or secured by the 
policy and any unpaid balance of the premium for 
the current policy year, and may collect interest in 
advance on the loan to the end of the current policy 
year; and may further provide that such loan may 
be deferred for not exceeding six months after the 
application therefor is made. It shall be further stip- 
ulated in the policy that failure to repay any such 
loan or pay interest thereon shall not avoid the policy 
unless such total indebtedness to the com^pany shall 
equal or exceed such loan value at the time of such 
failure, nor until 30 days after notice shall have been 
mailed by the company to the last known address of 
the insured and to the assignee, if any, if such as- 
signee has notified the company of his address. No 
condition other than as herein provided shall be exact- 
ed as a prerequisite to any such loan. This pro- 
vision shall not be required in term policies nor shall 
it apply to paid-up insurance issued or granted in 
exchange for lapsed or surrendered policies. 

(10) That in event of the default of premium pay- 
ment after premiums have been paid for not less than 
three years, the insured shall be entitled to the ex- 



STATE LAWS. 257 

tended insurance shown in the table of values and 
options for the end of the last year for v/hich full 
annual premiums shall have been paid. Provided, 
that any unpaid note given for premium and any 
existing indebtedness to the company on account of 
or secured by the policy shall reduce the amount or 
term of such extended insurance in the ratio of such 
indebtedness to the net value of such extended insur- 
ance ; and, provided, that the policy may be surren- 
dered to the company at its home office within one 
month from date of default for a specified cash value 
at least equal to the sum which would otherwise be 
available for the purchase of extended insurance as 
aforesaid; and, provided, further, that ttie company 
may defer payment for not more than six months 
after the application therefor is m^ade. This provision 
shall not be required in term insurance of twenty 
years or less. 

(11) That, should there have been default in pre- 
mium payment, and the value of the policy applied to 
the extension of the insurance, and such insurance 
be in force and the original policy not surrendered 
to the company and cancelled, the policy may be 
reinstated within three years from such default, upon 
evidence of insurability satisfactory to the company 
and payment of arrears of premiums with interest. 

(12) That when a policy shall become a claim by 
the death of the insured, settlement shall be made 
upon receipt of due proof of death and of the interest 
of the claimant and not later than two months after 
receipt of such proof. 

(13) A title on the face and the back of the policy 
describing the same. 

Any of the foregoing provisions or portions thereof 
relating to premiums not applicable to single premium 
policies shall to that extent not be incorporated there- 
in. The foregoing provisions of this section five (5) 
shall not apply to policies issued on substandard, un- 
der average or impaired risks. 



258 FALLACIES OF LIFE INSURANCE. 

POLICIES— WHAT SHALL NOT CONTAIN. 

Chapter 5, Section 126. 

No policy of life insurance shall hereafter be is- 
sued or delivered in this state, or be issued by a life 
insurance company organized under the laws of this 
state, if it contain any of the following provisions : 

(1) Limiting the time within which any action at 
law or in equity may be commenced, to less than 
three years after the cause of action shall accrue. 

(2) By which the policy shall purport to be issued 
or to take effect more than six months before the 
original . application for the insurance was made. 

(3) That in the event of the maturity of any policy 
after the expiration of the contestable period thereof, 
for any mode of settlement at maturity of less value 
according to the company's published rate therefor 
then in use, than the amount insured under the pol- 
icy, plus dividend additions, if any, less any indebted- 
ness to the company on account of or secured by 
the policy and less any premium that may, by the 
terms of the policy, be deducted. 

(4) For the forfeiture of the policy for failure to 
repay any loan on the policy, or to pay interest on 
such loan while the total indebtedness on the policy 
is less than the loan value thereof; or any provisions 
for forfeiture for failure to repay any such loan or 
to pay interest thereon unless such provision contain 
a stipulation that no such forfeiture shall occur until 
at least thirty days after notice shall have been mailed 
by the company to the last known address of the in- 
sured and to the assignee, if any, if such assignee has 
notified the company of his address. 

(5) "Which contains any clause promising to the 
holder of such policy any special dividend or benefit 
to be derived from any other policy: nor shall any^ 
company organized under the laws of this state issue 
in connection with any policy any separate paper or 



STATE LAWS. 259 

contract promising any such special dividend or bene- 
fit: nor shall any company be admitted to do business 
in this state that issues policies which contain any 
such clause, or which issue in connection with any 
policy any separate paper or contract promising any 
such dividend or benefit. 

POLICY LOANS— INTEREST. 

Chapter 5, Section 127. 

In ascertaining the indebtedness due upon policy 
loans the interest, if not paid when due, shall be added 
to the principal of such loan, and shall bear interest 
at the rate specified in the note or loan agreement. 

FORMS OP POLICY— APPROVAL. 

Chapter 5, Section 128. 

No policy of life insurance shall be issued or deliv- 
ered in this state by any life insurance company until 
the form and title of same shall have been filed with 
the auditor of the state; and if the provisions of 
such policy violate any law of this state, the auditor 
of state shall disprove such form, and after the aud- 
itor of state shall have notified any such company of 
any such disapproval of any such form, it shall be un- 
lawful for such company to issue such policy in the 
form so disapproved. The action of the auditor of 
the state shall be subject to review by any court of 
competent jurisdiction. 

INSURANCE— LIFE— FALSE STATEMENTS. 

[Acts 1909, page 273; approved March 6, 1909.] 

Chapter 5, Section 132. 

It shall be unlawful for any life insurance company 
or any officer, director or agent thereof, to issue or 
circulate or cause or authorize to be issued or circu- 



260 FALLACIES OF LIFE INSURANCE. 

lated any estimate, illustration, circular or statement 
of any sort, misrepresenting the terms of any policy 
issued or to b.e issued by such company, or the bene- 
fits or privileges promised thereby, or the dividends 
or share of surplus to be received thereunder, or for 
any insurance company, or for any officer, director or 
agent thereof, to make any misrepresentations, oral or 
otherwise, to any person insured in another company 
for the purpose of inducing or tending to induce such 
person to take out a policy of insurance, or to lapse, 
forfeit or surrender his said insurance. 

INSURANCE— LIFE— EEBATING. 

[Acts 1909, page 85; approved March 1, 1909.] 
Chapter 15, Section 306. 

That no life insurance company doing business in 
this state, nor any officer or agent of such company, 
shall directly or indirectly pay, allow, or offer to pay 
or allow as an inducement to insurance, any rebate of 
premium in connection with a policy of life insurance 
be issued upon any application solicited in this state. 
Nor shall any such company, officer or agent, make 
any contract or agreement as to the amount of pre- 
mium to be paid on any policy solicited in this state 
other than as plainly expressed in the policy, nor shall 
any company knowingly issue a policy of insurance 
when any part of the premium has been rebated. 

324. Illinois Non-Forfeiture Law. 

[Approved May 20th, 1907, in force January 1st, 1908.] 

Chapter 5, Section 209. 

An act relating to the transaction of the business 
of life insurance in the State of Illinois, and regu- 
lating the conditions and provisions of policies of life 
insurance companies, organized under the laws of this 
State, or doing business herein. 



STATE LAWS. 261 

PROVISIONS POLICY SHALL CONTAIN. 

Section 1. That from and after January 1, 1908, no 
policy of life insurance shall be issued or delivered in 
this State or be issued by a life insurance company or- 
ganized under the laws of this state, unless the same 
shall provide the following: 

(1) That all premiums after the first shall be pay- 
able in advance, either at the home office of the com- 
pany or to an agent of the company, upon delivery of 
a receipt signed by one or more of the officers who 
shall be designated in the policy. 

(2) For a grace of one month for the payment of 
every premium after the first year which may be sub- 
ject to an interest charge, during which month the 
insurance shall continue in force : Provided, that if 
the insured shall die within the month of grace the 
unpaid premium for the current policy year may be 
deducted in any settlement under the policy. 

(3) That the policy, together with the application 
therefor, a copy of which application shall be endorsed 
upon or attached to the policy and made a part there- 
of, shall constitute the entire contract between the 
parties and shall be incontestable after tw^o years from 
its date, except for non-payment of premiums and 
except for violations of the conditions of the policy 
relating to the naval or military service in time of 
war : Provided, that the application therefor need not 
be attached to any policy containing a clause making 
the policy incontestable from date of issue. 

(4) That if the age of the insured has been mis- 
stated the amount payable under the policy shall be 
such as the premium would have purchased at the 
correct age, or the premium may be adjusted and credit 
given to the insured or to the company, according to 
the company's published rate at date of issue. 

(5a) That the policy shall participate in the sur- 
plus of the company, and any policy containing pro- 
vision for participation at the er.d of the first policy 



262 FALLACIES OP LIFE INSURANCE. 

year, and annually thereafter, may also provide that 
each dividend shall be paid subject to the payment of 
the premium for the next ensuing year; and the in- 
sured under any annual dividend policy shall have the 
right each year to have the dividend arising from 
such participation paid in, cash and if the policy shall 
provide other dividend options, it shall further pro- 
vide that if the insured shall not elect any such other 
options, the dividend shall be paid in cash. Such par- 
ticipation may, however, begin not later than the end 
of the twentieth policy year. 

(5b) If any company shall issue any policies under 
the terms of which the payment of dividends is de- 
ferred later than the third policy year, such company 
shall furnish the Insurance Superintendent each year 
a statement showing the number and amount of all 
policies with deferred dividends in force at the be- 
ginning of the year for which the statement is made ; 
of all such policies issued and revived or terminated 
during the said year with the mode of termination; 
and the number and amount of all such, policies in 
force at the end of said year. Also a statement show- 
ing any and all amounts provisionally set apart, as- 
certained or calculated or held awaiting apportion- 
ment upon such policies at the beginning of said year, 
the additions made to the said fund during the year 
with the source from which such additions arose, the 
deductions made from the said funds during the year, 
with the reasons therefor and the amount of said fund 
at the end of the year; which shall be carried as a 
distinct and separate liability to such class of policies 
on for which the sum was accumulated. Upon writ- 
ten request of the insured under any deferred divi- 
dend policy after said policy shall have been in force 
more than three years, the company shall furnish said 
policy-holder with a statement of the amount of sur- 
plus provisionally ascertained or set aside on such pol- 
icy and held awaiting apportionment at the expiration 
of the deferred dividend period. 



STATE LAWS. 263 

(5c) The provisions of this section shall not apply 
to any form of paid-np insurance or temporary insur- 
ance or pure endowment insurance, issued or granted 
in exchange for lapsed or surrender policies, or to non- 
participating policies. 

(6.) That after three full years' premiums have 
been paid, the company, at any time, while the pol- 
icy is in force, will loan, on the execution of a proper 
note or loan agreement by the insured, and on proper 
assignment and delivery of the policy and on the sole 
security thereof, at a specified rate of interest, a sum 
equal to, or at the option of the insured, less than the 
reserve at the end of the current policy year on the 
policy and on the dividend additions thereto, if any 
(the policy to specify the mortality table and the rate 
of interest adopted for computing such reserve), less 
specified percentage (not more than two and one-half) 
of the amount insured by the policy and of the divi- 
dend additions thereto, if any, and that the com- 
pany will deduct from such loan value any existing 
indebtedness on or secured by the policy and any un- 
paid balance of the premium for the current policy 
year, and may collect interest in advance on the loan 
to the end of the current policy year; provided, that 
such loan may be deferred for not exceeding six 
months after the application therefor is made. No 
condition other than as herein provided shall be 
exacted as a prerequisite to any such loan. This 
provision shall not be required in term insurance, nor 
shall it apply to a temporary insurance or pure en- 
dowment insurance, issued or granted in exchange for 
lapsed or surrendered policies. 

(7) That in event of default in premium pay- 
ments, after premiums shall have been paid for three 
years, the insured shall be entitled to a stipulated 
form of insurance the net value which shall be at 
least equal to the reserve at the date of default on the 
policy and on dividend additions thereto, if any (the 



264 FALLACIES OF LIFE INSURANCE. 

policy to specify the mortality table and rate of in- 
terest adopted for computing such reserve), less a 
specified percentage (not more than two and a half) 
of the amount insured by the policy and of existing 
dividend additions thereto, if any, and less any exist- 
ing indebtedness to the company on or secured by 
the policy; provided, that the policy may be surren- 
dered to the company at its home office within one 
month of date of default for a specified cash value 
at least equal to the sum which would otherwise be 
available for the purchase of insurance as aforesaid: 
And provided, further, that the company may defer 
payment for not more than six months after the ap- 
plication therefor is made. This provision shall not 
be required in term insurance of twenty years or less. 

(8) A table showing in figures the loan values, and 
the options available under the policies each year 
upon default of premium payments, during at least the' 
first twenty years of the policy, beginning with the year 
in which such values and options become available. 
The specified percentage referred to in (6) and (7) 
need not be stated for the policy years included in said 
table. 

(9) That if in event of default in premium pay- 
ments, the value of the policy shall be applied to the 
purchase of other insurance, and if such insurance 
shall be in force and the original policy shall not 
have been surrendered to the company and canceled, 
the policy may be reinstated within three years from 
such default, upon evidence of insurability satisfac- 
tory to the company and payment of arrears of pre- 
miums with interest. 

(10) That when a policy shall become a claim by 
the death of the insured, settlement shall be made 
upon receipt of proof of death and of the interest of 
the claimant and not later than two months after the 
receipt of such proof. 

(11) A table showing the amount of instalments 



STATE LAWS. 265 

ill which the policy may provide its proceeds may be 
payable. 

(12) Title on the face and on the back of the pol- 
icy correctly describing the same. 

Provisions Policy Shall Not Contain. 

Chapter 5, Section 210. 

§2. No policy of life insurance shall be issued or 
delivered in this State, or be issued by a life insur- 
ance company organized under the laws of this State, 
if it contain any of the following provisions : 

(1) A provision limiting the time within which 
any action at law or in equity may be commenced to 
less than three years after cause of action shall accrue. 

(2) A provision by which the policy shall purport 
to be issued or to take effect more than six months 
before the original application for insurance was made. 

(3) A provision that in event of maturity of any 
policy after the expiration of the contestable period 
thereof, any mode of settlement at maturity of less 
value according to the company ^s published rates 
therefor then in use than the amount insured on the 
face of the policy plus dividend additions, if any, less 
any indebtedness to the company on or secured by the 
policy, and less any premium that may, by the terms 
of the policy, be deducted. 

(4) A provision for forfeiture of the policy for 
failure to repay loan on the policy, or to pay interest 
on such loan while the total indebtedness on the policy 
is less than the loan value thereof. 

Section 211. 

§ 3. In ascertaining the indebtedness due upon the 
policy loans, the interest, if not paid when due, shall 
be added to the principal of such loans, and shall bear 
interest at the rate specified in the note or loan agree- 
ment. 



266 FALLACIES OF LIFE INSURANCE. 

Section 212. 

Form of Policy to Be Filed. 

§ 4. No policy of life insurance shall be issued or de- 
livered in this State or be issued by a life insurance 
company organized under the laws of this State, until 
the form of the same has been filed with the Insurance 
Superintendent ; and after the Insurance Superintend- 
ent shall have notified any company of his disapproval 
of any form, it shall be unlawful for such company 
to issue any policy in the form so disapproved. The 
Insurance Superintendent's action shall be subject to 
review by any court of com^petent jurisdiction. 

Section 213. 

Companies of Other States. 

§ 5. The policies of a life insurance company, not 
organized under the laws of this State, may contain 
any provision which the law of the state, territory, dis- 
trict or country under which the company is organ- 
ized prescribes shall be in such policies when issued in 
this state, and the policy of a life insurance company 
organized under the law of this State may, when is- 
sued or delivered in any other state, territory, dis- 
trict or country, contain any provisions required by 
the laws of this state, territory, district or country in 
which the same are issued, anything in this act to 
the contrary notwithstanding. 

Section 214. 

§ 6. This Act shall not apply to annuities, industrial 
policies or to corporations or associations operating 
on the assessment or fraternal plan; provided, that 
in every case where a contract provides for both in- 
surance and annuities this Act shall apply to that part 
of the contract only which provides for insurance, 
but every such contract providing for a deferred an- 
nuity on the life of the insured only shall (unless 



STATE LAWS. 267 

paid for by a single premium), provided that in the 
event of the non-payment of any premium after three 
full years' premiums shall have been paid, the an- 
nuity shall automatically become converted into a 
paid-up annuity for such proportions of the original 
annuity as the number of completed years' premiums 
paid bears to the total number of premiums required 
under the contract. 

Approved June 10, 1909, in force July 1, 1909. 

Section 215. 

§ 7. All Acts and parts of Acts inconsistent with 
the provisions herewith are hereby repealed. 

Rebates and Discriminations Between Insurants by 
Life Companies. 

An Act to correct certain abuses and prevent unjust 
discriminations of and by life insurance companies 
doing business in this State, between insurants of the 
same class and equal expectation of life in the rates, 
amount, or payment of premiums in the return of pre- 
miums, dividends, rebates or other benefits. Approved 
June 19, 1891 ; in force July 1, 1891 ; L. 1891, p. 148. 

Rebates and Discrimination Prohibited. 

Chapter 5, Section 202. 

Section 1. That no life insurance company or asso- 
ciation organized under the laws of this State or 
doing business within the limits of the same, shall 
make or permit any distinction or discrimination be- 
tween insurants of the same class and equal expec- 
tation of life, in its established rates ; nor in the 
charging, collecting, demanding or receiving of the 
amount of premium for insurants of the same class 
and equal expectation of life ; nor in the return ratably 
of premium, dividends, or other benefits, accruing, or 



268 FALLACIES OF LIFE INSURANCE. 

that may accrue to such insurants as aforesaid; nor 
in the terms and conditions of the contract between 
such company and the insurants, and such contract of 
insurance shall be fully and wholly expressed and con- 
tained in the policy issued and the application there- 
for; nor shall any such company or its agent pay, 
or allow, or offer to pay or allow to any person in- 
sured, any special rebate of premium or any special 
favor or advantage in the dividends or other benefits 
to accrue on such policy, or promise the same to any 
person as inducement to insure, or promise to give 
any advantage or valuable consideration whatever, not 
expressed or specified in the policy of such company. 

Unjust Discriminations to Be Deemed Violation of 

Law. 

Chapter 5, Section 203. 

If any life insurance company, or association, its 
agent or agents, as aforesaid, shall make any unjust 
discriminations, as enumerated in Section 1 of this 
Act, the same shall be deemed guilty of having vio- 
lated the provisions of this Act, and upon conviction 
thereof shall be dealt with as hereinafter provided. 

Act Not to Apply to Fraternal Associations. 
Chapter 5, Section 205. 

4. The provisions of this Act shall not be construed 
to apply to fraternal associations dispensing aid or 
benefits to members, or their heirs, or legal represen- 
tatives. 



STATE LAWS. 269 

Life Insurance — Misrepresentations. 

An Act to prohibit misrepresentations by life in- 
surance companies. In force July 1, 1907. 

Chapter 5, Section 206. 
Misrepresenting Policy. 

Section 1. That no life insurance company doing 
business in this state, and no officer, director or agent 
thereof, shall issue or circulate or cause or permit to 
be issued or circulated, any estimate, illustration, cir- 
cular or statement of any sort misrepresenting the 
terms of any policy issued by it or the benefits or ad- 
vantages promised thereby, or the dividends or share 
of surplus to be received thereon, or shall use any 
name or title of any policy or class of policies mis- 
representing the true nature thereof. 

Penalty. 

2. Any company or individual violating any of the 
provisions of this Act shall be subject to a penalty of 
not less than twenty-five dollars nor more than five 
hundred dollars, to be recovered in any court having 
jurisdiction thereof in an action brought in the name 
of the people of the State of Illinois by the Attorney 
General, Insurance Superintendent or State's Attor- 
ney of the county in which such violation occurs, said 
penalty when recovered to be paid into the county 
treasury of the county in which such recovery is had. 

3. All Acts and parts of Acts inconsistent here- 
with are hereby repealed. 



270 FALLACIES OF LIFE INSURANCE. 



CHAPTER XVII 

DEFINITIONS 

325. Definitions of Words and Terms Used in Life 
Insurance. 

Accumulations. 

The act of gathering together or accumulating; 
to amass; to increase. As applied to the accumula- 
tions of INTEEEST, when the interest on an invest- 
ment or deposit remains undrawn. "When used in a 
life insurance way it expresses the condition where 
dividends are left with the company for a specified 
number of years, called deferred dividends, and also 
where money is paid to the company for a number 
of years to create the reserve, called reserve accumu- 
lations. Whereas in the former the dividend may 
be ascertained annually, but left with the company to 
be withdrawn after the expiration of the deferred 
dividend period. 

Actuary. 

Originally used to denote a registrar or clerk, but 
more recently it has been used to distinguish one who 
is proficient in the practical application of mathe- 
matics to the fact upon which life insurance is based. 
It is now acquiring a broader meaning and might be 
stated as '^an expert in insurance," where the word 
expert involves a knowledge of mathematics, law and 
bookkeeping. 

Annuitant. 

One who receives or possesses an annuity. 
Annuity. 

The periodical payment of money, either yearly, 
half-yearly, or quarterly; for a determinate period as 
ten, fifty or a hundred years; or for an indeterminate 



DEFINITIONS. 271 

period, dependant on a certain contingency, as the 
death of a person; or for an indefinite term, in which 
latter case they are called perpetual annuities. As the 
probability of the duration of life at every age is 
known, so annuities may be purchased for fixed sums 
during the life of the party. And most commonly 
referred to as a 

LIFE ANNUITY, one where the payment depends 
on the survivance of some stipulated person and which 
ceases at death. 

ANNUITY-CERTAIN, one which is paid for a speci- 
fied number of years irrespective of the survivance of 
any particular person or the happening of any con- 
tingency. 

TEMPORARY ANNUITY, one which is payable for 
a specified time. It is a temporary life annuity when 
it is payable for a specified time contingent upon a 
life. Such annuity would cease at the termination of 
the specified time or at an earlier date upon the death 
of the annuitant. It is an annuity-certain where no 
life contingency is considered. 

CONTINGENT ANNUITY, one which is payable 
only upon the happening of an event which may oc- 
cur. Thus : an annuity is payable to a son providing 
the death of the father occurs within the life-time of 
the mother, or an annuity which is payable to a son 
should the death of the father occur within ten years. 

REVERSIONARY ANNUITY, one which is being 
paid to the husband but reverting to the widow upon 
his death. 

SURVIVORSHIP ANNUITY, one which is to com- 
mence at the death of a person and payable during 
the life-time of the beneficiary. Thus : upon the death 
of a husband the widow receives an annuity for life. 

DEFERRED ANNUITY, one which is payable after 
a specified number of years. Thus : a person may pur- 
chase an annuity payable after a specified number of 
years, thus providing an income for old age. 



272 FALLACIES OF LIFE INSURANCE. 

JOINT LIFE ANNUITY, one which is continuously 
payable periodically while two or more persons are 
alive and would cease with the first death. 

LAST SURVIVOR ANNUITY, one which is de- 
pendant upon two or more lives payable until the 
death of both. This is also referred to as a Joint and 
Survivor Annuity. 

Application. 

A form to be filled out by the purchaser where ap- 
plication is made for insurance and is made a part 
of the policy contract. 

Assets. 

All of the property belonging to the company. A 
distinction is made between admitted assets and gross 
assets. The latter may include such items as personal 
security, loans, promissory notes, office furniture, etc., 
but these items are excluded by the Insurance De- 
partments after they have been deducted, the balance 
is called the net or admitted assets. 

Assignee. 

The person to whom the policy contract has been 
assigned, conveyed or mortgaged. By the laws of 
some of the States it is considered contrary to pub- 
lic policy, that one person should have an interest in 
the death of another unless closely related by ties 
of blood or marriage, and assignments in the absence 
of such interest are not valid. Generally, however, 
the purchaser of a policy for value is protected by the 
law and a creditor may hold a policy to the extent 
to which he would suffer loss through the death of 
his debtor but for no more. 

Assured or Insured. 

(Assured or insured being synonymous terms see 
'insured.'') 



DEFINITIONS. 273 

Beneficiary. 

The person for whose benefit the insurance has been 
effected. A life insured must always be named in the 
policy contract and often a stipulated beneficiary is 
also mentioned. Sometimes a third person acquires 
an interest in the policy, namely, the assignee. 

Bonus. 

This word is sometimes used to denote the share 
or surplus under a policy, but is seldom used in Amer- 
ica the word ^'dividend'' being supplanted. 

Brokerage. 

This term in life insurance is generally applied to 
the remuneration of an agent who is instrumental in 
effecting the issuance of a policy, when such remun- 
eration takes the form of a single cash payment upon 
completion of the transaction, often a percentage of 
the first premium under the policy. 

Claims. 

This word is used most exclusively to denote claims 
by death, as death claims, and the word might also be 
held to cover surrender values drawn in cash, endow- 
ments which mature by survivance and other obliga- 
tions on the part of the company. 

Commission. 

The remuneration to an agent for his services, based 
upon the premiums collected. A commission is also 
paid to agents on the second and subsequent premiums 
paid the company for a specified number of years, or 
the full time the policy remains in force. 

Company. 

A number of persons associated together for a cer- 
tain business enterprise. In a life insurance company 
the purpose is to afford protection for those dependant 



274 FALLACIES OP LIFE INSURANCE. 

upon the members against loss by death. The organi- 
zation of a company generally implies the election of 
a Board of Directors to manage the affairs of the com- 
pany, appoint executive officers, etc. In a mutual com- 
pany the directors are elected by the policy-holders, 
sometimes by personal votes, but more frequently by 
proxies. In a Stock company the policy-holders have 
the additional guarantee of the capital subscribed by 
the stockholders, who elect the directors and who are 
generally entitled to share in the profits of the com- 
pany. A pure stock insurance Company, in which 
all the profits belong to the stockholders, is now prac- 
tically unknown. 

Contribution Plan. 

A method of distributing the surplus of a life in- 
surance company based on the following principles : 

The policy is credited with the premiums paid and 
with interest earned thereon. It is then debited with 
expenses of management, the cost of insurance, and 
the policy value at the date of computation. The 
credits over the debits represents the surplus contrib- 
uted by the policy. 

Cost of Insurance. 

The actual mortality risk incurred by a life insur- 
ance company. The aggregated cost of insurance ex- 
perienced by a company in a year consists of the total 
claims by death, less the policy values released on 
the termination of the contracts. The expected cost 
of insurance is the mortality portion of the net pre- 
mium accumulated to the end of the year, and con- 
sists of the rate of mortality, under the table adopted, 
multiplied by the net amount at risk. (See Risk.) 

Distribution. 

A dividing up : apportionment ; this word is gener- 
ally applied to the division of surplus in an insurance 
company. It is the act of allotting to individual pol- 



DEFINITIONS. 275 

icy-holders the share in the total surplus to which each 
is entitled. 

DISTRIBUTION PERIOD.— The time over which a 
distribution of dividends is calculated ; sometimes used 
as the exact time at which the distribution takes 
place. 

Dividend. 

A part or share ; particularly, the share of the in- 
terest or profit of stock in trade or other investment, 
which belongs to each proprietor according to his pro 
rata proportion of the stock or capital; as a bank- 
dividend. In life insurance the micaning is in con- 
formity, and the word expresses the share of surplus 
earned by and allotted to any policy. 

The dividends to life insurance policy-holders are 
variously distinguished as annual, deferred, accumula- 
tion, cash, reversionary and contingent. 

ANNUAL DIVIDENDS.— Where dividends are paid 
annually the amount so paid represents the amount 
of cash surplus earned by any policy in the preceding 
year. 

DEFERRED OR ACCUMULATED DIVIDENDS.— 
Where the dividends calculated annually are left with 
the company to accumulate for a specified number of 
years, the dividends so left are apportioned and paid 
to those who are alive and their policies in force. The 
distribution is generally paid in cash or to be applied 
to reduce future premiums. Sometimes this cash divi- 
dend may remain undrawn and be payable with ac- 
cumulated interest together with the sum insured. 

CASH AND REVERSIONARY DIVIDENDS.— The 
distinction between these two forms of dividend is 
that the former is a sum payable at once, while the 
latter is an equivalent larger sum payable at death. 
Where the reversionary plan is adopted the cash sur- 
plus is applied as a single premium to purchase a 
paid-up addition to the sum insured, due at the same 
time as the face value of the policy. The death rate 



276 FALLACIES OF LIFE INSURANCE. 

and the interest worth of money are taken into con- 
sideration in fixing the equivalent amount of rever- 
sionary dividend, with the result that the same sum is 
payable if the insured die immediately after the re- 
version as will be paid if he survive for many years. 

When cash dividends remain undrawn, on the other 
hand, a smaller amount is payable in event of earlier 
death than if the life insured were to survive many 
years, because in the latter case the interest accumula- 
tions over the entire period increase the dividend pay- 
ment. 

CONTINGENT DIVIDEND.— This assumes the na- 
ture of a pure endowment, and is payable only if the 
insured survives a fixed period, or in the event of some 
other contingency being fulfilled. 

Endowment. 

PURE ENDOWMENT.— A pure endowment is the 
form of policy which provides a sum of money after 
a specified number of years, provided some stipulated 
person be alive at that time. In such case the bene- 
fit is lost if the stipulated person should die before 
the date agreed upon. 

The word ^'Endowment'' is often used as meaning 
the same as, ENDOWMENT INSURANCE. This form 
of policy combined the Pure Endowment above men- 
tioned with the result that the sum insured is payable 
either at death within the specified period or on sur- 
vivance. The Endowment Insurance is a very popular 
form of policy, but the Pure Endowment is almost 
obsolete; hence the word ''Endowment" in popular 
usage generally refers to an Endowment Insurance 
and not to a Pure Endowment. Correctly speaking 
there is no such thing as Endowment Insurance. It 
is Endowment and Insurance. 

Expectation of Life. 

The average after lifetime at a specified age. This 
result is obtained by adding together the periods lived 



DEFINITIONS' 277 

by each one of a body of persons, all of the same age, 
and dividing the results by the total number of per- 
sons. It is incorrect to use the expectation of life as a 
basis for monetary calculations. 

COMPLETE AND CURTATE EXPECTATION.— 
When the above result is obtained accurately by tak- 
ing into account fractions of a year, the expectation 
is called ^'complete''; but when only the number of 
full years lived by each person is used, the fraction 
of a year in the year of death being ignored, the 
phrase ^'curtate expectation'' is used. Accordingly, 
the latter is always less than the former by approxi^ 
mately half a year. 

Expected. 

An adjective used to distinguish from the actual re- 
sults of experience the figures which would result if 
the tabulated death rate were to be exactly repro- 
duced. Thus we have the ^^ expected" deaths and the 
'^actual" deaths, ^^ expected" cost of insurance and 
the ^^ actual" cost of insurance, etc. As mortality 
tables differ from each other, the ^^ expected" results 
in like manner differ according to the table employed 
in computation. (See Mortality Table, Article 328.) 

Extended Insurance. 

This consists in carrying the nominal risk, as shown 
by the face value of a policy, for a period of time 
as temporary insurance. No further premiums are 
payable. This is one of the forms of surrender value 
prescribed by statute. It is sometimes also called Con- 
tinued Insurance. 

Forfeiture. 

The loss of a valuable right or benefit through the 
violation of or omission to observe, an essential con- 
dition. When applied to a life insurance policy the 
causes which most commonly result in the forfeiture 
of the same are : 

1. Non-payment of premium when due; 



278 FALLACIES OF LIFE INSURANCE. 

2. Fraud or misrepresentations in obtaining a pol- 
icy. 

3. Proceeding to an unhealthy climate, undertak- 
ing some hazardous occupation, or committing suicide 
within a limit of time after the policy is taken; and 

4. The lack of insurable interest on the part of 
the person who effected the policy. 

The third of the above causes is generally covered 
in American companies after two years from the date 
of issue of any policy; in some instances policies are 
free in this respect from the commencement. Under 
the second and fourth causes the policy may be con- 
sidered void from the beginning; but the avoidance 
of the risk cannot be established until the fraud or 
lack of insurable interest is proved; these conditions 
are therefore much the same as forfeiture. 

Impaired. 

An adjective sometimes used to distinguish a per- 
son who is unsuitable for the issue of a policy of 
insurance in the healthy class ; literally below par ; not 
equal to the average. Impaired risks are sometimes 
accepted in a special class by themselves or with extra 
premiums which correspond to the extent of the im- 
pairment. 

Instalment Policy. 

A contract under which the sum insured, instead of 
being payable in one sum at death or on maturity, is 
payable in equal annual instalments thereafter. For 
example, a Whole Life Policy for $10,000, payable in 
twenty instalments, would secure $500 each year for 
twenty years after the death of the insured. It fol- 
lows that the rate of premiums appears small in rela- 
tion to the face value of the policy, because when the 
sum insured is payable in instalments its value is con- 
siderably smaller at the date of death. The premium 
therefore for the policy mentioned in the above exam- 
ple w^ould be approximately three-quarters of the pre- 



DEFINITIONS. ~"^' 279 

mium required for a policy of $10,000 payable in cash 
at death. 

CONTINUOUS INSTALMENTS,— When a benefici- 
ary is named, and when the policy provides that the 
annual instalment shall be payable not only for a fixed 
number of years certain, but also for as many years 
as the beneficiary may live, the policy is said to be 
a continuous instalment policy. Should the benefici- 
ary die before the policy becomes a claim, the pre- 
mium is generally reduced to the regular fixed instal- 
ment rate, and the minimum number of instalments are 
paid when matured by death. Otherwise another bene- 
ficiary may be named if the proper increase in pre- 
mium be paid annually. The policy is a survivorship 
annuity under another name, and with the guarantee 
of a fixed number of payments whether the annuitant 
be alive or dead. 

Insurable Interest. 

The liability by one person to suffer pecuniary loss 
on the death of another. The law recognizes several 
kinds of insurable interest : A wife has an insurable 
interest in her husband's life, and vice versa under 
certain conditions; children in their father's life; chil- 
dren in their widowed mother's life; father and mother 
in their children's life; sister in her brother's life, 
and vice versa under certain conditions ; a person in 
a near relative when dependant ; or a creditor has 
an insurable in 'merest in his debtor's life. 

The law is very rigid in providing that one per- 
son cannot insure the life of another unless he has 
some insurable interest and would suffer pecuniary 
loss by the death of that other person. The reason 
for the enforcement of this law is obvious: insurance 
effected in the absence of such interest Avould be con- 
trary to public policy; this would provide a motive 
for crime. 



280 FALLACIES OF LIFE INSURANCE. 

Insurance. 

A term applied to the guarantee of a monetary pay- 
ment as compensation on the happening of some un- 
toward event, in consideration of an immediate cash 
payment, or number of annual payments. In its basic 
principle it consists in the combination of many per- 
sons to protect each individual against some contin- 
gency which may happen soon, which may be long de- 
ferred, or which may never happen. 

LIFE INSURANCE involves the payment of a sum 
of money on the death of some stipulated person, 
the life insured, in consideration of the receipt of 
a specific premium. It is distinguished by several 
names according to the class of business transacted, 
or according to the nature of the company undertak- 
ing the obligation, as follows : 

INSURANCE COMPANY.— An organization formed 
for the granting of insurance. In life insurance, com- 
panies are generally divided in two classes: (1) Mu- 
tual companies where the policy-holders have the su- 
preme control and elect Directors, and (2) Stock Com- 
panies where Directors are elected by the stockhold- 
ers, who are frequently entitled to a share of the sur- 
plus. 

In early years there were several stock companies in 
which the entire surplus belonged to stockholders ; and 
an attempt was then made to distinguish a third class 
of company as a ^' Mixed" company because in such 
cases the policy-holder had a share in the surplus. 
At the present time all stock companies give policy- 
holders a large share in the surplus, so that this dis- 
tinction is no longer necessary. The principal differ- 
ence between a mutual and a stock company now lies 
in the method of electing Directors. (See '^Com- 
pany.") 

ASSESSMENT INSURANCE.— This is a form of 
mutual protection which originated in the practice of 
calling for a donation from each member of a Society 



DEFINITIONS. 281 

for the family of a deceased member. It is still con- 
ducted partly in this manner, and the proceeds under 
any certificate of membership are frequently limited 
to the assessments levied upon the surviving members 
in consequence of the death or deaths which have oc- 
curred. The payment at the death of a member, there- 
fore, varies according to the number of members, the 
amount of assessment paid by each, and the number 
of deaths. 

Sometimes assessments are levied in advance, and 
in such cases a fixed amount is usually guaranteed at 
death. 

FRATERNAL INSURANCE, is conducted by an as- 
sociation without capital stock, carried on solely for 
the mutual benefit and protection of its members, hav- 
ing a lodge system and representative form of gov- 
ernment. 

LEGAL RESERVE OR OLD-LINE INSURANCE.— 
This term is generally applied to life insurance con- 
ducted on scientific principles, under which a policy 
value is carried in respect of each contract in force. 

INDUSTRIAL INSURANCE.— This is a form of 
Legal Reserve Life Insurance, generally for small 
amounts under which the premiums are payable in 
weekly or monthly instalments. Its original design 
was to provide insurance by weekly premiums for 
the industrial classes, hence the adoption of the word. 

When premiums are payable at longer intervals than 
once a month, the same policy would be called ordi- 
nary; the distinguishing feature, therefore, is in the 
payment of premiums at frequent intervals. 

Premiums are usually collected each week. 

INSURANCE DEPARTMENT.— That Department 
of the State government which lias control of insur- 
ance matters. 

Insured. 

A wrong interpretation is often placed upon this 
word. 



282 FALLACIES OF LIFE INSURANCE. 

AS AN ADJECTIVE it is commonly used in the 
phrase ''life insured/' this being the person on whose 
life the policy is taken. 

AS A NOUN it is most commonly applied with the 
same meaning as that above given for an adjective. 

An attempt has been made to restrict the meaning 
of ''the insured'' to the person for whose benefit the 
policy has been taken, that is, the beneficiary. This is 
the most correct meaning, but it is not generally un- 
derstood in this way. 

Interest. 

Premium paid for the use of money. It is generally 
due and payable at fixed intervals, such as at the end 
of each year, or half-year, and is computed as a per- 
centage of the sum lent. For example, if $100 were 
lent out at 6 per cent, payable semi-annually, interest 
of $3.00 would be due at the end of each six months 
during the continuance of the loan, the two payments 
in each year making up the $6.00, or 6 per cent per 
annum. 

SIMPLE AND COMPOUND INTEREST.— When 
the interest falls due at periodic intervals, and there 
is the means of enforcing payment at the proper time, 
there is no difference between simple and compound in- 
terest. But if the interest be allowed to run on for 
a length of time, then under simple interest no addi- 
tional charge can be made for interest on the unpaid 
interest. On the other hand, when compound interest 
is charged, the interest as it falls due becomes part 
of the ^'principal" of the loan and thus earns more 
interest. Subsequent interests, therefore, are charged 
not only on the original sum lent, but also on the un- 
paid interest due in the past. In some States it is 
illegal to charge compound interest because this was 
considered usurious ; this idea is gradually disappear- 
ing. When interest is payable in advance, it is fre- 
quently called 

DISCOUNT. — This is also a payment for the use 



DEFINITIONS. 283 

of money, but charged in advance. As the payment 
is made once, discount is a little more valuable to a 
lender than interest at the same rate. This practice 
is generally adopted in the banking business and also 
where a policy-holder secures a loan from the insur- 
ance company upon his policy. Where the interest is 
deducted from the loan in advance the borrower is 
paying more than the stipulated rate of interest. For 
example, where $1,000 is borrowed at 6 per cent dis- 
count, the $60 deducted would earn 6 per cent inter- 
est during the year. Therefore the borrower had actu- 
ally paid 6.6 per cent interest for the use of the $1,000. 

Lapse. 

When applied to a life insurance policy it signifies 
passing from one proprietor to another upon failure 
to perform certain acts or in violation of certain con- 
ditions which cause a forfeiture. Most commonly ap- 
plied to the termination of a policy through non-pay- 
ment of a premium. There is this vital distinction 
between lapse and forfeiture, that a policy may lapse 
while yet the non- forfeiture provision may apply; the 
policy lapses, but its value or a fair proportion thereof 
remains. 

Legal Reserve. 

(See ^^Reserve.") 

Liability. 

This word is used in a general commercial sense 
to denote any legal obligation for which the company 
may be liable. In the plural the word LIABILITIES 
is used in life insurance to cover all obligations, pres- 
ent and future, including death claims filed but not 
approved, dividends apportioned but not paid, com- 
missions on premiums outstanding, surrender values 
which may be claimed on lapsed policies, as well as 
the present value of all outstanding policies. This 
last, in the case of nearly all life insurance companies, 
is by far the largest item of liability. When the sur- 



284 FALLACIES OF LIFE INSURANCE. 

plus is added to the liabilities above outlined, a bal- 
ance is effected with the assets. 

Life Policy. 

Under this form the obligation on the part of the 
company is that it shall pay a stipulated sum at the 
death of the insured. If the consideration payable by 
the insured is an annual premium, so long as he may 
live, it is called a WHOLE LIFE CONTINUOUS PRE- 
MIUM OE PAYMENT POLICY, or an ORDINARY 
WHOLE LIFE POLICY. If the insured elects to pay 
the premiums in a limited number of years, the sum 
insured being still payable at death, it is called A LIM- 
ITED PAYMENT POLICY sometimes more specific- 
ally, a ten, fifteen or twenty payment policy. 

Limited Payment. 

This term is generally applied to a form of policy 
under which the death claim is payable at death, the 
premiums falling due only for a limited number of 
years. If the insured lives the premiums cease after 
a fixed period and the policy or the premiums become 
^ ^ paid-up ;'Vif he die within the period, the premiums 
cease when the death claim becomes payable. The 
most popular form is the twenty-payment policy, the 
premiums being limited to twenty annual payments 
or ceasing earlier should the insured's death occur. 

Loading. 

The sum by which the premium for a policy of in- 
surance exceeds the net rate required for the risk 
(see ^^Premium"). The additional payment is neces- 
sary in order to meet expenses, provide against ad- 
verse fluctuation, and furnish part of the surplus for 
distribution. 

Mortality. 

Actual demise of deaths in a stated time or given 
community; hence the ratio of the number of per- 



DEFINITIONS. 285 

sons dying in a year to the total number alive at the 
beginning of a year and under observation, 

LIGHT mortality is spoken of when the number 
dying is less than the tabulated statistics lead one 
to anticipate; the converse is HEAVY mortality. In 
Life Insurance the terms favorable and unfavorable 
for light and heavy mortality are frequently used. 

EXPECTED MORTALITY.— The deaths which 
would take place amongst a number of persons, as in 
an insurance company, if the rate of dying were to 
agree exactly with some specified mortality table. 

MORTALITY TABLE.— The instrument by means 
of which are measured the probabilities of living and 
dying. 

A mortality table generally records the number of 
persons remaining alive at each age out of a fixed 
number born (such as 10,000 or 100,000, called the 
^^ radix" of the table), also the number dying be- 
tween the respective ages. The radix may, however, 
commence at any convenient age, and in life insur- 
ance table generally commences at age 10. The 
American table terminates at age 96. 

Non-Forfeiture. 

This term is applied to certain laws and policy pro- 
visions which secure to policy-holders a fair value for 
their contracts if they should be allowed to lapse. The 
most general provision is that a large proportion of the 
policy value shall be applied EITHER to purchase 
paid-up insurance at the attained age of the insured, 
payable at the same time and under the same condi- 
tions (except as to payment of premiums) as the orig- 
inal policy, or to extend the face value of the orig- 
inal policy as term insurance for such time as the 
cash value will purchase when applied as a single pre- 
mium. By the laws of some States, it is further pro- 
vided that a proportion of the value may be withdrawn 
in cash. 



286 FALLACIES OF LIFE INSURANCE. 

The provisions of law generally stipulate that the 
values must be claimed within a reasonable time after 
the lapse of the policy for non-payment of premium. 

This time varies in different States from six months 
in New York to five years (fixed by legal decisions, 
not by enactment) in Tennessee. In Massachusetts the 
law stipulates that paid-up insurance will be granted 
automatically ^^ without any further stipulation or 
act," so that application for this right is unneces- 
sary. (See Article 322.) This law only applies to 
Massachusetts companies. 

Life insurance companies generally are more lib- 
eral in their conditions than even the strictest laws 
require, and amongst other features have introduced: 

AUTOMATIC NON-FORFEITUEB.— This term im- 
plies that the value of any policy contract at the date 
of lapse will be used without request by the insured, 
or without action on his part, towards preserving his 
equity. 

This is done in various ways, (1) by extending the 
face value of the policy under term insurance, (2) by 
providing (as in the case of the Massachusetts law) 
a paid-up policy for an equitable amount, and (3) 
in a few instances, by applying the value to main- 
tain the policy in full force, subject to an indebtedness 
to the extent of the unpaid premium which is ad- 
vanced by the company as a loan against the policy. 
Each one of these three plans has much to be said 
in its favor and has its own advocates. Under the 
first and third plans the insurance protection is main- 
tained at the largest possible figure, but the reserve 
value of the policy is necessarily used in maintaining 
this protection. 

Under the second plan the policy value will increase 
the longer the paid-up policy remains in force, and a 
small amount of protection is available at any time. 
On the other hand, however, the reduction in the sum 
insured at the date of lapse is frequently large, and 



DEFINITIONS. 287 

the insured cannot obtain the protection he formerly 
possessed without undergoing a new medical examina- 
tion. The third plan entirely meets this latter ob- 
jection, because the policy may be reinstated in full 
force on payment only of the premiums which have 
been advanced by the company with interest. Some 
of the State laws regulating non-forfeiture are given 
in Chapter XVI, and there is included also the old 
non-forfeiture laws in Massachusetts which have since 
been changed. These old laws, however, still apply 
to policies issued by Massachusetts companies while 
they were in force, and therefore they are still of 
practical importance, in addition to being valuable 
historically as giving an indication of the trend of 
thought and development of this non-forfeiture ques- 
tion. 

Option. 

The right of choice ; usually the word is used as 
meaning the right to enter into or reject a contract at 
a specific time. The various alternatives under a pol- 
icy of insurance when surplus is distributed are spoken 
of as options. 

At that time the holder of the policy may take 
either a cash payment or apply the same to the pur- 
chase of additional insurance, or the purchase of an 
annuity to reduce future premiums. 

Paid-Up Insurance. 

This represents an obligation on the part of an in- 
surance company to pay the death claim when the 
corresponding obligation on the part of the insured 
for payment of premiums has been fully satisfied. 
Properly speaking, it is the premiums that are ^'paid- 
up", not the insurance, and the more correct expres- 
sion would, therefore be ^ insurance with premiums 
paid-up.'' The actual insurance remaining in the 
death claim cannot be ^^ paid-up.'' 



288 FALLACIES OF LIFE INSURANCE. 

Policy. 

The documentary evidence of a contract of indem- 
nity between the insurer and the insured. The full 
contract of life insurance generally consists of an ap- 
plication by the insured, including statements made 
by him to a medical examiner called medical report, 
and the policy issued by the company. 

POLICY YBAE. — A year dating from issue, or the 
renewal date of a policy. 

Policy Value. 

Commonly spoken of as the ^'Reserve''; that is, the 
fund which has accumulated out of the net premiums 
payable under any policy. On the average this fund, 
together with the net premiums to be received in fu- 
ture, is the exact mathematical equivalent of the obli- 
gation incurred by the company to pay the death 
claim. 

TERMINAL VALUE.— The policy value is most con- 
veniently calculated at the end of a policy year when 
a premium is just due, and before payment of such 
premium. The value at this time is called the Terminal 
Value or the Terminal Reserve under a policy. 

MEAN VALUE. — When a valuation of the policies 
of a company is being made at a fixed date, the Ter- 
minal Values above explained do not in general ap- 
ply, because the premiums fall due at various inter- 
vals throughout the year. It is generally assumed 
in a company valuation that premiums fall due with 
regularity over the year, and this is approximately 
correct. The policy values are therefore computed as 
MEAN Values by taking the arithmetical mean be- 
tween (1) the Terminal Value of the current year, 
and (2) the Terminal Value of the preceding year plus 
one year's net premium. 

Premium. 

The amount payable by a person effecting an insur- 
ance in consideration of the benefit to be obtained. 



DEFINITIONS. 289 

The root of the word (L. PEIMS. first) implies that 
it is payable in advance, and this is the general prac- 
tice; the policy of insurance does not go into effect 
until the first premium has been paid. "Premiums are 
most frequently payable annually, but by making an 
interest charge for the unpaid portion of the pre- 
mium, equal to the amount of interest the company 
would realize were the premiums paid in full, they may 
be paid in semi-annual or quarterly instalments. In 
such cases if the insured should die after paying one 
semi-annual instalment of a full year's premium, then 
in such case the balance or unpaid portion of the 
current year's premium is deducted from the amount 
of the death claim. Practically, therefore, the pre- 
miums remain annual premiums, but they are accept- 
ed in instalments as a convenience for the policy- 
holder. 

EXTRA PREMIUM.— The premium charged in ad- 
dition to the normal rate on account of some addi- 
tional hazard incurred by the insured. The most usual 
cause for extra premiums are, (1) occupation, and (2) 
foreign residence. Occasionally an extra premium is 
also imposed because of impaired health on the life 
insured. 

NET PREMIUM.— This is the exact mathematical 
equivalent of the benefit guaranteed, according to the 
table of mortality and rate of interest used in the 
calculation. It is the basis on which insurance com- 
panies form the gross premium. 

GROSS PREMIUM.— The premium charged for a 
stipulated death claim. It generally consists of the 
net premium, plus the insured's share contributed for 
expense of management, possible dividends and invest- 
ment features. 

SINGLE PREMIUM.— When an insurance or an- 
nuity benefit is purchased for one payment only, this 
payment is called the single premium. For example, 
the net single premium at age 30 by the American 



290 FALLACIES OF LIFE INSURANCE. 

Experience Table at 3^ per cent is $337.02 ; this is the 
exact equivalent of $1,000 payable at the death of 
a person of the age 30 when 3J per cent interest dur- 
ing life is allowed for, and the chance of death in any 
year by that table is taken into consideration. 

PREMIUM NOTES.— Promissory notes giv^en by pol- 
icy-holders in part payment of their premiums. In all 
eases these notes are secured by the value of the pol- 
icy. Sometimes they run for a short period only, 
thereby giving the insured facility for paying part 
of his premium at a later date. Sometimes they are 
drawn for a fixed proportion of each premium and 
become due only when the policy ceases to be in force, 
or when a dividend is declared, or a claim arises. They 
are in the nature of policy loans as an evidence of 
indebtedness. 

Quinquennial. 

Occurring once in five years, or lasting five years. 
In life insurance it is generally used to denote the 
plan for apportioning or paying the dividends accru- 
ing on a policy. Thus : The dividends are payable 
quinquennial on a twenty-payment life policy, mean- 
ing the dividends are payable the 5th, 10th, 15th and 
20th years. 

Renewal. 

An adjective applied to those premiums paid after 
the first year, by means of which a policy is renewed 
and kept in force. Hence it is also applied to renewal 
commission, being the commission paid on renewal pre- 
miums. Such commissions are often referred to as 
an agent's renewals. 

Reserve. 

This word is generally used to denote the net value 
of all policies of a company remaining in force on 
a fixed date (see ^ POLICY VALUE'^. 

The aggregate policy values are ascertained liabili- 
ties, so that when used in this way, the word Reserve 



DEFINITIONS. 291 

has a diflferent meaning from that commonly em- 
ployed in commercial circles, when the reserve fund 
is something set apart as a future protection over and 
above the ascertained liabilities. The word reserve is 
applied to that portion of the premium paid the com- 
pany to create the cash values of the policy. 

Risk. 

Chance of loss. Often used in life insurance to de- 
note the person on whom a policy has been issued, who 
is spoken of as ^^a good risk" or ^^an impaired risk." 

AMOUNT AT EISK is the difference between the 
face value of the policy of insurance and the policy 
value held in the assets against it. This is the sum 
which has to be taken from the general mortality fund 
of the company, if the insured should die, and upon 
which the cost of insurance is calculated. 

Surplus. 

Excess above what is required. The sum by which 
the assets of a Life Insurance Company exceed its lia- 
bilities. Like the word ^^ assets," therefore, it is dis- 
tinguished by the adjectives gross, net, and admitted. 
The two latter refer to the surplus credited by the In- 
surance Department to an Insurance Company, while 
the form^er may include certain assets which, by the 
practice of Insurance Departments would be excluded, 
or not admitted. 

Surrender. 

To cease to claim ; to relinquish ; a word used in life 
insurance generally to imply the voluntary discon- 
tinuance of a policy of insurance, and claiming of the 
value which may then be allowed bv the companv. 
The SURRENDER VALUE is the equivalent given 
by an Insurance Company to a policy-holder on his re- 
linquishing his rights under the policy. Such sur- 
render values are usually payable in one of three 



292 FALLACIES OF LIFE INSURANCE. 

forms: (1) Cash; (2) PAID-UP Insurance; or (3) 
Extended Insurance. 

Tontine. 

This peculiar word is derived from the name of an 
Italian, Leonardo Tonti, who first suggested the form 
of investment or speculation, which now goes under 
the name of a Tontine. It is a fund subscribed with 
the understanding that it will accumulate for a speci- 
fied time, and thereafter be divided amongst the sur- 
viving contributors. Tontines are now practically un- 
known, and have been little used since the beginning 
of the 19th century. The word is frequently used in 
life insurance to distinguish a certain form of sur- 
plus, spoken of as a 

TONTINE DIVIDEND.— This form of dividend was 
popular so long as it was the practice to forfeit en- 
tirely the policy value in event of the insured dis- 
continuing payment of premiums. When the practice 
of guaranteeing liberal surrender values arose, the Ton- 
tine Dividend form of distribution to a great extent 
was discontinued. Policies which were entitled to a 
Tontine Dividend were placed in a class by themselves, 
and the premiums were accumulated for the specific 
benefit of the members of that class. The expenses of 
management and claims by death applicable to the 
class were charged out and, at the end of the Tontine 
period the aggregate policy values were also deducted 
from the fund. The remainder was the surplus which 
was distributed amongst the policy-holders then exist- 
ing. Usually also the right was given at that time 
to withdraw the entire policy value. At the termina- 
tion of a Tontine period, therefore, the entire fund 
contributed by the members of any specific class was 
understood to be terminated. 

SEMI-TONTINE DIVIDENDS.— This form was in- 
troduced after it became customary to pay surrender 
values on the discontinuance of policies after being 
three years in force. It is practically the equivalent of 



DEFINITIONS. 293 

a deferred dividend policy, and the latter name is now 
generally preferred. The semi-tontine or deferred 
dividend policies are becoming very unpopular. 

Valuation. 

The process of ascertaining the liabilities of an 
insurance company under its outstanding policies. Val- 
uation consists in striking a balance between the pres- 
ent value of the obligations on the part of the com- 
pany and the present value of the premiums to be 
received from policy-holders. 

The practice of companies (almost invariable in 
America) is to take credit only for net premiums on 
the assumption that the loadings are thereby left in- 
tact to meet future expense in connection with the 
business. Valuation by this process is known as Net 
Premium Valuation, or more shortly, NET VALUA- 
TION. When the gross premiums actually payable 
are valued and taken credit for, the process is called 
one of GEOSS PREMIUM VALUATION. This method 
does not make sufficient allowance for future expense ; 
although this may be done by deducting a percentage 
from the value of the premiums. 



294 



FALLACIES OP LIFE INSURANCE, 



326. Compound Interest Table. One Dollar Prin- 
cipal. 

The sum to which One Dollar Principal will increase 
at Compound Interest, in any number of years indi- 
cated, at 3, 3^, 4, 5 and 6 per cent per annum. 



End of 












Years. 


3% 


35^% 


4% 


5% 


6% 


1 


$1,030 


$1,035 


$1,040 


$1,050 


$1,060 


2 


1.060 


1.071 


1.081 


1.102 


1.123 


3 


1.092 


1.108 


1.124 


1.157 


1.191 


4 


1.125 


1.147 


1.169 


1.215 


1.262 


5 


1.159 


1.187 


1.216 


1.276 


1.338 


6 


1.194 


1.229 


1.265 


1.340 


1.418 


7 


1 ?29 


1.272 


1.315 


1.407 


1.503 


8 


1.266 


1.316 


1.368 


1.477 


1.593 


9 


1.304 


1.362 


1.423 


1.551 


1.689 


10 


1.343 


1.410 


1.480 


1.628 


1.790 


11 


1^84 


1.460 


1.539 


1.710 


1.898 


12 


1.425 


1.511 


1.601 


1.795 


2.012 


13 


1.468 


1.564 


1.665 


1.885 


2.132 


14 


1.512 


1.618 


1.731 


1.979 


2.260 


15 


1.558 


1.675 


1.800 


2.078 


2.396 


16 


1.604 


1.734 


1.873 


2.182 


2.540 


17 


1.652 


1.794 


1.947 


2.292 


2.692 


18 


1.702 


1.857 


2.025 


2.406 


2.854 


19 


1.753 


1.922 


2.106 


2.527 


3.025 


20 


1.806 


1.989 


2.191 


2.653 


3.207 


21 


1.860 


2.059 


2.278 


2.786 


3.399 


22 


1.916 


2.131 


2.369 


2.925 


3.603 


23 


1.973 


2.206 


2.464 


3.071 


3.819 


24 


2.032 


2.283 


2.563 


3.225 


4.048 


25 


2.093 


2.363 


2.665 


3.386 


4.291 


26 


2.156 


2.446 


2.772 


3.555 


4.549 


27 


2.221 


2.531 


2.883 


3.733 


4.822 


28 


2.287 


2.620 


2.998 


3.920 


5.111 


29 


2.356 


2.711 


3.118 


4.116 


5.418 


30 


2.427 


2.806 


3.243 


4.321 


5.743 


31 


2.500 


2.905 


3.373 


4.538 


6.088 


32 


2.575 


3.006 


3.508 


4.764 


6.453 


33 


2.652 


3.111 


3.648 


5.003 


6.840 


34 


2.731 


3.220 


3.794 


5.253 


7.251 


35 


2.813 


3.333 


3.946 


5.516 


7.686 


36 


2.898 


3.450 


4.103 


5.791 


8.147 


37 


2.985 


3.571 


4.268 


6.081 


8.636 


38 


3.074 


3.696 


4.438 


6.385 


9.154 


39 


3.167 


3.825 


4.616 


6.704 


9.703 


40 


3.262 


3.959 


4.801 


7.040 


10.285 



TABLES. 



295 



327. One ($1) Per Annum in Advance. 

One Dollar per Annum in Advance. The sum to which One Dollar 
per Annum, paid at the beginning of each year will increase at compound 
interest in any number of years not exceeding forty at 3, 43^, 5, 5)^, 6 
per cent per annum. 





3 per 


4 per 


43^^ per 


5 per 


53^ per 


6 per 


Yrs. 


Cent 


Cent 


Cent 


Cent 


Cent 


Cent 


1 


1.030 


1.040 


1.045 


1.050 


1.055 


1.060 


2 


2.091 


2.122 


2.137 


2.153 


2.168 


2.184 


3 


3.184 


3.246 


3.278 


3.310 


3.342 


3.375 


4 


4.309 


4.416 


4.471 


4.526 


4.581 


4.637 


5 


5.468 


5.633 


5.717 


5.802 


5.888 


5.975 


6 


6.662 


6.898 


7.019 


7.142 


7.267 


7.394 


7 


7.892 


8.214 


8.380 


8.549 


8.722 


8.897 


8 


9.159 


9.583 


9.802 


10.027 


10.256 


10.491 


9 


10.464 


11.003 


11.288 


11.578 


11.875 


12.181 


10 


11.808 


12.486 


12.811 


13.207 


13.583 


13.972 


11 


13.192 


14.026 


14.464 


14.917 


15.385 


15.870 


12 


14.618 


15.627 


16.160 


16.713 


17.287 


17.882 


13 


16.086 


17:292 


17.932 


18.599 


19.292 


20.015 


14 


17.599 


19.024 


19.784 


20.579 


21.409 


22.276 


15 


19.157 


20.825 


21.719 


22.657 


23.641 


24.673 


16 


20.762 


22.698 


23.742 


24.840 


25.996 


27.213 


17 


22.414 


24.645 


25.855 


27.132 


28.481 


29.906 


18 


24.117 


26.671 


28.064 


29.539 


31.103 


32.760 


19 


25.870 


28.778 


30.371 


32.066 


33.868 


35.786 


20 


27.676 


30.969 


32.783 


34.719 


36.786 


38.993 


21 


29.537 


33.248 


35.303 


37.505 


39.864 


42.392 


22 


31.453 


35.618 


37.937 


40.430 


43.112 


45.996 


23 


33.426 


38.083 


40.689 


43.502 


46.538 


49.816 


24 


35.459 


40.646 


43.565 


46.727 


50.153 


' 53.865 


25 


37.553 


43.312 


46.571 


50.113 


53.966 


58.156 


26 


39.710 


46.084 


49.711 


53.669 


57.989 


62.706 


27 


41.931 


48.968 


52.993 


57.403 


62.233 


67.528 


28 


44.219 


51.966 


56.423 


61.323 


66.711 


72.640 


29 


46.575 


55.085 


60.007 


65.439 


71.435 


78.058 


30 


49.003 


58.328 


63.752 


69.761 


76.419 


83.802 


31 


51.503 


61.701 


67.666 


74.299 


81.677 


89.890 


32 


54.078 


65.210 


71.756 


79.064 


87.225 


96.343 


33 


56.730 


68.858 


76.030 


84.067 


94.077 


103.184 


34 


59.462 


72.652 


80.497 


89.320 


99.251 


110.435 


35 


62.276 


76.598 


85.164 


94.836 


105.765 


118.121 


36 


65.174 


80.702 


90.041 


100.628 


112.637 


126.268 


37 


68.159 


84.970 


95.138 


106.710 


119.887 


134.904 


38 


71.234 


89.409 


100.464 


113.095 


127.536 


144.058 


39 


74.401 


94.026 


106.030 


119.800 


135.606 


153.762 


40 


77.663 


98.827 


111.847 


126.840 


144.119 


164.048 



296 FALLACIES OF LIFE INSURANCE. 

328. American Table of Mortality. Ages 20 to 96. 
With Death Rate Per 1,000 and *' Expectation 
of Life.'' 



Age 


Number 


Deaths 


Death Rate 


Expectation 




Living 


Each Year 


Per 1,000 


of Life 


20 


92,637 


723 


7.80 


42.20 


21 


91,914 


722 


7.85 


4L53 


22 


91,192 


721 


7.91 


40.85 


23 


90,471 


720 


7.96 


40.17 


24 


89,751 


719 


8.01 


39.49 


25 


89,032 


718 


8.06 


38.81 


26 


88,314 


718 


8.13 


38.12 


27 


87,596 


718 


8.20 


37.43 


28 


86,878 


718 


8.26 


36.73 


29 


86,160 


719 


8.34 


36.03 


30 


85,441 


720 


8.43 


35.33 


31 


84,721 


721 


8.51 


34.63 


32 


84,000 


723 


8.61 


33.92 


33 


83,277 


726 


8.72 


33.21 


34 


82,551 


729 


8.83 


32.50 


35 


81,822 


732 


8.95 


31.78 


36 


81,090 


737 


9.09 


31.07 


37 


80,353 


742 


9.23 


30.35 


38 


79,611 


749 


9.41 


29.62 


39 


78,862 


756 


9.59 


28.90 


40 


78,106 


765 


9.79 


28.18 


41 


77,341 


774 


10.01 


27.45 


42 


76,567 


785 


10.25 


26.72 


43 


75,782 


797 


10.52 


26.00 


44 


74,985 


812 


10.83 


25.27 


45 


74,173 


828 


11.16 


24.54 


46 


73,345 


848 


n.56 


23,81 


47 


72,497 


870 


12.00 ; 


23.08 


48 


71,627 


896 


12.51 


22.36 


49 


70,731 


927 


13.11 


21.63 


50 


69,804 


962 


13.78 


20.91 


51 


68,842 


1,001 


14.54 


20.20 


52 


67,841 


1,044 


15.39 


19.49 


53 


66,797 


1,091 


16.33 


18.79 


54 


65,706 


1,143 


17.40 


18.09 


55 


64,563 


1,199 


18.57 


17.40 







TABLES. 


297 


Age 


Number 


Deaths 


Death Rate 


Expectation 




Living 


Each Year 


Per 1,000 


of Life 


56 


63,364 


1,260 


19.88 


16.72 


57 


62,104 


1,325 


21.33 


16.05 


58 . 


60,779 


1,394 


22.94 


15.39 


59 


59,385 


1,468 


24.72 


14.74 


60 


57,917 


1,546 


26.69 


14.10 


61 


56,371 


1,628 


28.88 


13.47 


62 


54,743 


1,713 


31.29 


12.86 


63 


53,030 


1,800 


33.94 


12.26 


64 


51,230 


1,889 


36.87 


11.67 


65 


49,341 


1,980 


40.13 


11.10 


Q6 


47,361 


2,070 


43.71 


10.54 


67 


45,291 


2,158 


47.65 


10.00 


68 


43,133 


2,243 


52.00 


9.47 


69 


40,890 


2,321 


56.76 


8.97 


70 


38,569 


2,391 


61.99 


8.48 ^ 


71 


36,178 


2,448 


67.66 


8.00 


72 


33,730 


2,487 


73.73 


7.55 


73 


31,243 


2,505 


80.18 


7.11 


74 


28,738 


2,501 


87.03 


6.68 


75 


26,237 


2,476 


94.37 


6.27 


76 


23,761 


2,431 


102.31 


5.88 


77 


21,330 


2,36^ 


111.06 


5.49 


78 


18,961 


2,291 


120.83 


5.11 


79 


16,670 


2,196 


131.73 


4.74 


80 


14,474 


2,091 


144.47 


4.39 


81 


12,383 


1,964 


158.60 


4.05 


82 


10,419 


1,816 


174.30 


3.71 


83 


8,603 


1,648 


191.56 


3.39 


84 


6,955 


1,470 


211.36 


3.08 


85 


5,485 


1,292 


235.55 


2.77 


86 


4,193 


1,114 


265.68 


2.47 


87 


3,079 


933 


303.02 


2.18 


88 


2,146 


744 


346.69 


1.91 


89 


1,402 


555 


395.86 


1.66 


90 


847 


385 


454.54 


1.42 


91 


462 


246 


532.47 


1.19 


92 


216 


137 


634.26 


.98 


93 


79 


58 


734.18 


.80 


94 


21 


18 


857.14 


.64 


95 


3 


3 


1,000.00 


.50 



298 FALLACIES OF LIFE INSURANCE. 

329. Table Showing the Net and Gross Natural Cost 
of $1000.00 Insurance for One Year at 3 Per 
Cent American Table. 



Age 


Net 


Gross 


Age 


Net 


Gross 


Age 


Net 


Gross 


20 


$ 7.58 


$10.11 


46 


$11.23 


$14.97 


72 


$ 71.59 


$ 95.45 


21 


7.63 


10.17 


47 


11.65 


15.53 


73 


77.84 


103.79 


22 


7.68 


10.24 


48 


12.14 


16.19 


74 


84.49 


112.65 


23 


7.73 


10.31 


49 


12.72 


16.96 


75 


91.62 


122.16 


24 


7.78 


10.37 


50 


13.38 


17.84 


76 


99.33 


132.44 


25 


7.83 


10.44 


51 


14.12 


18.83 


77 


107.83 


143.77 


26 


7.89 


10.52 


52 


14.94 


19.92 


78 


117.31 


156.41 


27 


7.96 


10.61 


53 


15.86 


21.15 


79 


127.90 


170.53 


28 


8.02 


10.69 


54 


16.89 


22.52 


80 


140.26 


187.01 


29 


8.10 


10.80 


55 


18.03 


24.04 


81 


153.99 


205.32 


30 


8.18 


10.91 


56 


19.31 


25.75 


82 


169.22 


225.63 


31 


8.26 


11.01 


57 


20.71 


27.61 


83 


185.98 


247.97 


32 


8.36 


11.15 


58 


22.27 


29.69 


84 


205,20 


273.60 


33 


8.46 


11.28 


59 


24.00 


32.00 


85 


228.69 


304.92 


34 


8.57 


11.43 


60 


25.92 


34.56 


86 


257.94 


343.92 


35 


8.69 


. 11.59 


61 


28.04 


37.39 


87 


294.19 


392.25 


36 


8.82 


11.76 


62 


30.38 


40.51 


88 


336.59 


448.79 


37 


8.97 


11.96 


63 


32.95 


43.93 


89 


384.33 


512.44 


38 


.9.13 


12.17 


64 


35.80 


47.73 


90 


441.31 


588.41 


39 


9.31 


12.41 


65 


38.96 


51.95 


91 


516.96 


689.28 


40 


9.51 


12.68 


66 


42.43 


56.57 


92 


615.79 


821.05 


41 


9.72 


12.96 


67 


46.26 


61.68 


93 


712.79 


950.39 


42 


9.95 


13.27 


68 


50.49 


67.32 


94 


832.18 


1009.57 


43 


10.21 


13.61 


69 


55.11 


73.48 


95 


970.87 


1294.49 


44 


10.51 


14.01 


70 


60.19 


80.25 


96 


1000.00 


1333.33 


45 


10.84 


14.45 


71 


65.69 


87.59 









TABLES. 



299 



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^t^7-HCOCO(MCOcOCaT-H 
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ll 


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cocococococococococo 


lOC^OOiOC^Cit^iOC^^ 
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300 



FALLACIES OP LIFE INSURANCE 



03 


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00 Gi O T-H C^ CO • • • • 
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t-H00c0^'^i01:^OilO(M 



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GiOOOOOr-iT-iT— iC^ 



CQCOCO^LOcOcOt^CiC 
OiOt>05Ci050iiC505CiC 






""^OOiCOC^liOTtiGiT-HCi 

T-Hocoio^cococOLOco 



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Ci CO IXM Ci CO 



C0C0^»^C01>00CiOrH 

cocococococococo^^ 



o3 O) 



T-lCO»Ot^'*COCQ^(MCO 



COC000rHCOLOI>.T— lOOO 

cOO'^OcOCOt-Ht-Ht— 1^ 



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lOC^^-^C^cOt^^CiCOiO 

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TABLES. 



301 






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ooooodooooooooooGi05 c50^C5000T-ti-HC<)(rq 

r-l 00 »0 CO (M (M (M CO CO C5 ^O0000O>O'*lOrHT-H 

Ci Oi O rH (M CO 'vi^ »0 CO t^ Oi t— i (M '^ t^ O (M lq Ci cO 

t^ Jt^ 00 00 00 00 00 00 00 00 00 G5 C5 05 Gi C5 O O O T-H 

I— < r— ( T— I T— ( 

CO (M 00 O C^ O 00 t^ !> I>- Oi (M CO r-l 00 O t^ O CO ^ 

t^ 00 00 O O rH ,— I CQ CO Ttl LQ 1> 00 O T-l CO to GO O CO 

t^ !>. 1> 1> 00 00 00 00 00 00 00 00 OOCi Ci Oi 05 O O O 

O ^ OS ^ C5 '^ O t^ '^ (M 1— ( T-H C^ CO t^ C^ 00 t^ 00 rH 

05 G5 OS O O rH ca C^ CO Tti lO CO !>. 00 05 1— I (M -^ CO Ci 

00 00 00 05 05 05 05 05 05 05 05 Oi 05 05 O O O O O 

CO CO CO CO CO CO CO CO CO CO CO CO CO CO CO ^ ^ ^ Th Tti 

^ !>. rH lO 05 CO 00 CO 05 lO C<1 05 l^ CO CO t^ 05 CO 00 iO 

•^ Tti lO to LO CO CO tr- !>. 00 05 05 O rH C^ CO -* CO l> 05 

^ '^ '^ ^ ^ -^ ^ ^ ^ ^ "^ ^ to »0) LO to to to to to 

tOiOtOtOtOtOtOtOtOtO tOtOtOtOtOtOtOtOtOtO 

O CO CO 05 CQ to 05 CO 00 CO 00 CO O CO ^ CQ 1— I T— I (M ^ 

CO CO CO CO ^ -=^ -^ to to CO CO l> 00 00 05 O 1-H (M CO Tf 

COcOcOcOcOcOcOcOcOcO C0c0c0c0c01>»t>-l>-i>-l>» 

00 00 00 00 00 00 00 00 00 00 oo oo oo oo oo oo oo oo oo oo 

(M CO O CO '^ CO CO to 05 'vH T-H rH CM lO T— I O T— I ^ T— I r-l 

l> O '^ J>. 1— I to 05 CO t^ (M t^ (M 1> CQ 00 '^ O CO CO O 

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tOtOI>-0'^T— I0505T— HlO T-HC5O5C<lt^tOtOO5COt0 

T"l to 05 '^ 00 CO ir^ CM 00 CO 05 Tt< O t^ CO o t^ ^ c^ o 

to to to CO CO 1> 1> 00 00 05 05 O T— I 1— I (M CO CO ^ to CO 

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CO t- CO T-l rH CO 00 to ^ CO T-H 00 05 (M 00 00 o t^ t^ o 

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COCOCOCOCOCOCOCOCOCO T^ ^ -=f=f -"^^ '^ ^ "^ rtH Tj^ 

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^t^0^1>-i— iTtiooc<ii:^ T— (cOrHi>c0O5iO(MO5l:^ 

CO CO '^ ^ '^ to to to CO CO t^ !>. 00 00 05 05 O T— I i-H <M 

^ T-M T-H ^ ^ 1-H rH ^ rH ^ rH ^ ^ r-H t-H t-I(M (M C<1 <M 

t^ O 05 CO to CO i-H t^ C^ t^ CM 00 CO CO G5 to lO O 05 CO 

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'*05COOOCOOO'^05iOO I>.C005COCOOl:^tOCOi— I 

0000050500r-i,-HCacO CO'^'^tOCOt^t^OCC^O 

(NC^C^C^COCOCOCOCOCO COCOCOCOCOOOCOCOC'O'^ 



CMCMCMCMCSICMCMCMCMCM 



Or-CMM'Sl-inCDI^OOOi 
COCOCOCOCOCOCOCOCOCO 



302 



FALLACIES OF LIFE INSURANCE. 







b-'<^t^iOT-iTt^iO'*C0Th 
7-HC500G5. CS|cOCSlOO(M 




t-Ht— It— It— li-HT-HrHrHC^C^I 


^SS5S?3^fe5^^ 


$B 

T— 1 




THOcOCOCOtOOO^(MC^ 




i-icqc^CO'^^iOcOlr^Oi 

T— It— It— li— It— It— ItHt— IrHT— 1 


(^^(^^(Mcs^cs^(^^cococoTt^ 






COlOOOCOCi<:OOI>rHl>. 


CO 
CO 


OrHi— It— ICMCOCOrtHLOCO 
T— It— It— It— It— It— It— It— It— It— 1 


t^00O5rHC^^CO00^CO 
tH^t-hC^C^(MC^C<ICOCO 




S^S2S§S?5§8g 


COOtHIOt— It— llOlOl>-00 

^CO^iOOO(Ml>TjHCOCO 


T— 1 

CO 


,-iT-irHC^C^COCO^T:^^»^ 


oir^oocioc^cotot^o^ 


;2h 


2!coSooSSS5§^ 


COT:tHCO(MOCirHCOiOT-i 
T-HOOOuOiOiOOOv-HCDCO 


1—1 




OO^C^CO^xot^OOO 




OOCOt-hOCOOCOOt-hoOO 


oo^oooc^co-^r^c^i 


T— 1 


00 00 00 00 00 00 00CX)00O5 


OT-irH(MCOCO^iOcDQO 
Oi O O^ G5 05 05 05 O^ 05 Oi 




lOC^-^OT-iir^OOcOT— ICO 

r^iococ^T-ioOT-icoio 


00C<lCDC^Oir^cOcOO5C^ 




OT-HfMCO^iOOt^OOOi 

cocococococococococo 


OC^COiOcOoOOC^^t^ 


T-H 


OOr^COcOOcOt^f^T— i-rJH 


t^rHOoqosir^cocot^o 


CO 
CO 


cOt^OOOiO^C^COiOcO 

CO CO CO CO "^ "^ ■^ "^ '^ '^ 


t^CiOC^C0i0t>05^Tt^ 




0005tOCOT-i(MOOCil>-0 
I>000(MiOOOt-hiOOcO 


C^OOcDTJH(M(MCOT:Ht^O 




050(MCO^tOI>-000^ 


CO-*CDOOOC^^OOO^ 


o 


ococococoioi-^ior-oo 

iOC0(M(M(MC0i01>O'^ 


OtjCiCi^cOCO'vHT-iCO-* 
CiiO(M^OT-HC01:^(MC5 




co-^iocor-oocsoc^co 

(MC^l(NCq(M(M(MCOCOCO 


COCOCO^'^T^TJH'^SiO 




COOi(MT-HOOOQOt^(M 
OCO<:DOO(NOO(Ml>iO 


Oilr^^OOOtOCOCqCiCO 
t^cOO»^COt-ht-i(McOcO 


i 

CO 


OOOt^OcOOcDOOt^ 
T-M^(MCO^iOcOt^0005 


ooc5T-^(^q'Tt^cDooO(^^Tt^ 

O^C0^>OC01>CiOrH 


0) 




Lototoio^moiomiom 


s 



TABLES. 



303 



332. Reserve Values for $1000 Ordinary Life Policies, 
American Experience, 3 Per Cent. 





Ist" 


2d 


3d 


~4th~ 


5th 


6th 


7th 


8th 


9th 


10th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


20 


$7.09 


$14.40 


$21.94 


$29.71 


$37.73 


$46.01 


$54.54 


$63.34 


$72.41 


$81.76 


21 


7.36 


14.95 


22.79 


30.86 


39.20 


47.79 


56.65 


65.79 


75.21 


84.91 


22 


7.65 


15.54 


23.68 


32.07 


40.73 


49.66 


58.86 


68.35 


78.12 


88.20 


23 


7.95 


16.15 


24.61 


33.34 


42.33 


51.61 


61.17 


71.02 


81.17 


91.64 


24 


8.27 


16.80 


25.59 


34.66 


44.01 


53.64 


63.57 


73.81 


84.36 


95.21 


25 


8.60 


17.47 


26.61 


36.04 


45.76 


55.77 


66.09 


76.72 


87.67 


98.94 


26 


8.94 


18.17 


27.68 


37.48 


47.58 


57.99 


68.71 


79.75 


91.12 


102.83 


27 


9.31 


18.90 


28.79 


38.98 


49.49 


60.31 


71.45 


82.92 


94.73 


106.88 


28 


9.69 


19.67 


29.95 


40.56 


51.48 


62.73 


74.31 


86.23 


98.50 


111.11 


29 


10.08 


20.47 


31.17 


42.20 


53.56 


65.25 


77.29 


89.68 


102.42 


115.51 


30 


10.49 


21.31 


32.45 


43.92 


55.73 


67.90 


80.41 


93.28 


106.50 


120.10 


31 


10.93 


22.19 


33.78 


45.72 


58.01 


70.76 


83.67 


97.03 


110.76 


124.87 


32 


11.39 


23.11 


35.17 


47.60 


60.39 


73.54 


87.05 


194.00 


115.19 


129.83 


33 


11.85 


24.06 


36.63 


49.56 


62.87 


76.53 


90.58 


105.00 


119.81 


135.01 


34 


12.35 


25.08 


38.16 


51.62 


65.46 


79.67 


94.27 


109.25 


124.63 


140.40 


35 


12.88 


26.13 


39.76 


53.77 


68.16 


82.94 


98.11 


113.68 


129.65 


146.01 


36 


13.42 


27.23 


41.42 


56.00 


70.97 


86.34 


102.12 


118.29 


134.86 


151.83 


37 


14.00 


28.38 


43.16 


58.33 


73.91 


89.90 


106.30 


123.09 


140.29 


157.86 


38 


14.58 


29.57 


44.96 


60.77 


76.98 


93.61 


110.65 


128.09 


145.91 


164.11 


39 


15.21 


30.83 


46.87 


63.32 


80.20 


97.48 


115.18 


133.27 


151.74 


170.57 


40 


15.86 


32.14 


48.85 


65.99 


83.54 


101.52 


119.88 


138.64 


157.76 


177.20 


41 


16.55 


33.53 


50.94 


68.78 


87.04 


105.70 


124.76 


144.19 


163.95 


184.01 


42 


17.26 


34.97 


53.11 


71.68 


90.65 


110.03 


129.79 


149.88 


170.28 


190.96 


43 


18.02 


36.47 


55.77 


74.68 


94.40 


114.50 


134.94 


155.70 


176.75 


198.06 


44 


18.79 


38.03 


57.70 


77.78 


98.25 


119.07 


140.21 


161.64 


183.34 


205.28 


45 


19.61 


39.65 


60.12 


80.98 


102.20 


123.74 


145.59 


167.70 


190.06 


212.62 


46 


20.44 


41.32 


62.60 


84.24 


106.21 


128.50 


151.05 


173.86 


196.87 


220.06 


47 


21.31 


43.03 


65.13 


87.56 


110.31 


133.34 


156.62 


180.11 


203.78 


227.59 


48 


22.20 


44.77 


67.70 


90.94 


114.47 


138.25 


162.26 


186.44 


210.77 


235.21 


49 


23.09 


46.53 


70.3.0 


94.36 


118.69 


143.24 


167.98 


192.86 


217.85 


242.91 


50 


24.00 


48.33 


72.96 


97.86 


122.99 


148.31 


173.17 


199.36 


225.01 


250.69 


51 


24.93 


50.17 


75.68 


101.42 


127.37 


153.47 


179.67 


205.96 


232.27 


258.55 


52 


25.88 


52.05 


78.45 


105.06 


131.82 


158.70 


185.66 


212.64 


239.59 


266.47 


53 


26.86 


53.97 


81.28 


108.75 


136.35 


164.02 


191.72 


219.39 


246.98 


274.44 


54 


27.85 


55.92 


84.15 


112.51 


140.95 


169.41 


197.84 


226.19 


254.42 


282.46 


55 


28.87 


57.91 


87.08 


116.33 


145.61 


174.86 


204.02 


233.05 


261.90 


290.50 


56 


29.90 


59.94 


90.06 


120.21 


150.33 


180.36 


210.25 


239.95 


269.41 


298.53 


57 


30.96 


62.01 


93.09 


124.13 


155.09 


185.91 


216.52 


246.89 


276.91 


306.54 


58 


32.04 


64.11 


96.15 


128.10 


159.90 


191.49 


222.82 


253.81 


284.39 


314.50 


59 


33.13 


66.23 


99.24 


132.09 


164.73 


197.10 


229.11 


260.70 


291.81 


322.36 


60 


34.23 


68.37 


102.35 


136.11 


169.58 


202.69 


235.37 


267.54 


299.13 


330.10 


61 


35.35 


70.53 


105.48 


140.15 


174.43 


208.26 


241.58 


274.29 


306.35 


337.69 


62 


36.47 


72.71 


108.64 


144.18 


179.25 


213.79 


247.70 


280.94 


313.42 


345.13 


63 


37.61 


74.90 


111.79 


148.19 


184.03 


219.23 


253.72 


287.43 


320.35 


352.49 


64 


38.75 


77.07 


114.90 


152.14 


188.71 


224.55 


259.59 


293.78 


327.18 


359.87 


65 


39.87 


79.22 


117.96 


156.01 


193.29 


229.74 


265.31 


300.06 


334.07 


367.43 


66 


40.98 


81.34 


120.96 


159.80 


197.75 


234.81 


271.00 


306.41 


341.17 


375.35 


67 


42.08 


83.40 


123.89 


163.47 


202.11 


239.84 


276.78 


313.01 


348.66 


383.79 


68 


43.13 


85.41 


126.72 


167.06 


206.45 


245.01 


282.83 


320.05 


356.73 


392.89 


69 


44.18 


87.36 


129.51 


170.78 


210.97 


250.51 


289.39 


327.73 


365.53 


402.76 


70 


45.18 


89.28 


132.35 


174.50 


215.86 


256.55 


296.66 


336.20 


375.16 


413.52 



304 



FALLACIES OP LIFE INSURANCE. 





11th 


12th 


13th 


14th 


15th 


16th 


17th 


18th 


19th 


20th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


20 


S91.40 


$101.33 


$111.56 


1122.09 


$132.94 


$144.11 


$155.60 


$167.42 


$179.56 


1192.04 


21 


94.91 


105.22 


115.83 


126.75 


138.00 


149.57 


161.47 


173.70 


186.27 


199.17 


22 


98.58 


109.27 


120.27 


131.61 


143.26 


155.25 


167.57 


180.23 


193.23 


206.59 


23 


102.40 


113.49 


124.91 


136.66 


148.74 


161.16 


173.92 


187.02 


200.47 


214.27 


24 


106.39 


117.90 


129.74 


141.92 


154.44 


167.30 


180.50 


194.06 


207.98 


222.25 


25 


110.55 


122.49 


134.77 


147.39 


160.36 


173.67 


187.34 


201.37 


215.77 


230.50 


26 


114.87 


127.26 


139.99 


153.07 


166.50 


180.29 


194.44 


208.96 


223.83 


239.05 


27 


119.38 


132.23 


145.43 


158.98 


172.90 


187.18 


201.82 


216.82 


232.18 


247.88 


28 


124.08 


137.40 


151.08 


165.13 


179.54 


194.32 


209.47 


224.97 


240.81 


256.99 


29 


128.96 


142.78 


156.96 


171.52 


186.44 


201.73 


217.39 


233.38 


249.72 


266.38 


30 


134.05 


148.38 


163.08 


178.16 


193.61 


209.42 


225.58 


242.08 


258.90 


276.02 


31 


139.35 


154.21 


169.45 


185.05 


201.04 


217.37 


234.05 


251.95 


268.34 


285.90 


32 


144.86 


160.27 


176.05 


192.20 


208.72 


225.58 


242.77 


260.25 


278.00 


296.00 


33 


150.60 


166.56 


182.90 


199.60 


216.66 


234.05 


251.73 


269.69 


287.90 


306.33 


34 


156.56 


173.10 


190.00 


207.26 


224.86 


242.72 


260.93 


279.35 


298.00 


316.86 


35 


162.76 


179.87 


197.35 


215.16 


233.28 


251.68 


270.34 


289.22 


308.32 


327.58 


36 


169.17 


186.87 


204.92 


223.28 


241.92 


260.82 


279.95 


299.29 


318.81 


338.48 


37 


175.81 


194.10 


212.71 


231.60 


250.76 


270.15 


289.76 


309.54 


329.48 


349.53 


38 


182.67 


201.54 


220.70 


240.12 


259.79 


279.68 


299.74 


319.96 


340.29 


360.72 


39 


189.72 


209.16 


228.88 


248.84 


269.02 


289.38 


309.89 


330.53 


351.26 


372.04 


40 


196.95 


216.97 


237.23 


257.17 


278.40 


299.23 


320.19 


341.24 


362.34 


383.47 


41 


204.35 


224.94 


245.76 


266.77 


287.94 


309.24 


330.62 


352.07 


373.54 


394.98 


42 


211.90 


233.07 


254.44 


275.96 


297.61 


319.36 


341.17 


362.99 


384.80 


406.55 


43 


219.60 


241.34 


263.24 


285.27 


307.40 


329.59 


351.80 


374.00 


396.12 


418.14 


44 


227.42 


249.72 


272.16 


294.69 


317.29 


339.91 


362.51 


385.04 


407.47 


429.75 


45 


235.35 


258.22 


281.18 


304.22 


327.27 


350.30 


373.26 


396.12 


418.83 


441.35 


46 


343.38 


266.80 


290.30 


313.81 


337.30 


360.73 


384.04 


407.21 


430.18 


452.90 


47 


251.50 


275.49 


299.49 


323.47 


347.39 


371.19 


394.84 


418.29 


441.48 


464.37 


48 


259.71 


284.24 


308.74 


333.18 


357.49 


381.66 


405.62 


429.32 


452.70 


475.73 


49 


267.99 


293.05 


318.04 


342.91 


367.62 


392.13 


416.36 


440.28 


463.83 


486.96 


50 


276.34 


301.92 


327.38 


352.68 


377.76 


402.57 


427.05 


451.16 


474.84 


498.04 


51 


284.76 


310.84 


336.76 


362.46 


387.88 


412.97 


437.67 


461.92 


485.69 


508.93 


52 


293.22 


319.80 


346.16 


373.23 


397.96 


423.29 


448.17 


472.55 


496.37 


519.63 


53 


301.73 


328.79 


355.55 


381.96 


407.97 


433.50 


458.53 


482.99 


506.87 


530.19 


54 


310.26 


337.76 


364.90 


391.62 


417.87 


443.58 


468.72 


493.26 


517.22 


540.68 


55 


318.79 


346.70 


374.19 


401.19 


427.64 


453.50 


478.74 


503.39 


527.52 


551.19 


56 


327.28 


355.59 


383.38 


410.62 


437.25 


463.24 


488.63 


513.47 


537.85 


561.83 


57 


335.72 


364.38 


392.46 


419.90 


446.70 


472.86 


498.48 


523.60 


548.32 


572.69 


58 


344.07 


373.05 


401.37 


429.02 


456.02 


482.45 


508.38 


533.89 


559.04 


583.83 


59 


352.29 


381.55 


410.12 


438.02 


465.32 


492.11 


518.46 


544.44 


570.05 


595.28 


60 


360.36 


389.90 


418.76 


447.00 


474.71 


501.96 


528.83 


555.32 


581.42 


607.12 


61 


368.28 


398.16 


427.39 


456.09 


484.30 


512.13 


539.56 


566.58 


593.19 


619.17 


62 


376.10 


406.41 


436.16 


465.41 


494.25 


522.68 


550.70 


578.28 


605.22 


631.56 


63 


383.95 


414.81 


445.18 


475.11 


504.62 


533.69 


562.32 


590.28 


617.61 


644.45 


64 


391.95 


423.49 


454.59 


485.26 


515.47 


545.23 


574.27 


602.67 


630.55 


658.19 


65 


400.25 


432.61 


464.51 


495.93 


526.88 


557.10 


586.65 


615.66 


644.41 


673.03 


66 


409.05 


442.27 


475.00 


507.24 


538.71 


569.49 


599.70 


629.64 


659.45 


688.84 


67 


418.44 


452.57 


486.18 


519.00 


551.09 


582.59 


613.82 


644.90 


675.54 


705.21 


68 


428.52 


463.61 


497.87 


531.37 


564.26 


596.85 


629.30 


661.29 


692.26 


721.54 


69 


439.43 


475.24 


510.25 


544.62 


578.68 


612.59 


646.02 


678.39 


708.99 


737.78 


70 


450.98 


487.61 


523.57 


559.21 


594.68 


629.66 


663.52 


695.54 


725.66 


754.69 



TABLES. 



305 





21st 


22d 


23d 


24th 


25th 


26th 


27th 


28th 


29th 


30th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


20 


$204.85 


$218.01 


$231.51 


$245.36 


$259.54 


$274.06 


$288.90 


$304.05 


$319.50 


$335.2r 


21 


212.43 


226.02 


239.97 


254.25 


268.87 


283.82 


299.08 


314.64 


330.47 


346.53 


22 


220.28 


234.33 


248.72 


263.45 


278.51 


293.89 


309.56 


325.50 


341.69 


358.10 


23 


228.43 


242.93 


257.78 


272.95 


288.44 


304.24 


320.30 


336.61 


353.15 


369.89 


24 


236.86 


251.83 


267.12 


282.74 


298.66 


314.85 


331.30 


347.97 


364.84 


381.90 


25 


245.59 


261.01 


272.76 


292.81 


309.14 


325.72 


342.53 


359.55 


376.75 


394.11 


26 


254.60 


270.49 


286.68 


303.15 


319.87 


336.83 


353.99 


371.34 


388.86 


406.50 


27 


263.90 


280.24 


296.86 


313.73 


330.84 


348.16 


365.67 


383.34 


401.14 


419.05 


28 


273.48 


290.26 


307.29 


324.56 


342.04 


359.71 


377.55 


395.52 


413.60 


431.75 


29 


283.31 


300.51 


217.95 


335.60 


353.45 


371.46 


389.61 


407.86 


426.19 


444.58 


30 


293.39 


311.01 


328.84 


346.87 


365.06 


383.39 


401.83 


420.35 


438.22 


457.51 


31 


303.70 


321.72 


339.94 


358.33 


376.85 


395.49 


414.20 


432.97 


451.76 


470.53 


32 


314.22 


332.65 


351.23 


369.97 


388.81 


407.73 


426.71 


445.70 


464.68 


483.60 


33 


324.96 


343.76 


362.71 


381.77 


400.01 


420.10 


439.32 


458.51 


477.65 


496.70 


34 


335.89 


355.06 


374.35 


393.72 


413.15 


432.59 


452.01 


471.38 


490.66 


509.82 


35 


347.00 


366.52 


386.14 


405.81 


425.49 


445.19 


464.77 


484.29 


503.69 


522.92 


36 


358.25 


378.13 


398.05 


418.00 


437.92 


457.79 


477.56 


497.21 


516.69 


535.96 


37 


369.67 


389.86 


410.08 


430.27 


450.41 


470.45 


490.37 


510.12 


529.65 


548.93 


33 


381.20 


401.70 


422.19 


442.61 


462.94 


483.14 


503.17 


522.97 


542.52 


561.77 


39 


392.35 


413.63 


434.36 


454.99 


475.49 


495.81 


515.91 


535.75 


555.29 


574.47 


40 


404.58 


425.62 


446.57 


467.38 


488.02 


508.44 


528.58 


548.42 


567.90 


586.99 


41 


416.37 


437.65 


458.80 


479.78 


500.52 


520.98 


541.14 


560.03 


580.33 


599.29 


42 


428.19 


449.70 


471.02 


492.11 


512.92 


533.42 


553.55 


573.27 


592.55 


611.37 


43 


440.03 


451.73 


483.19 


504.37 


525.22 


545.70 


565.77 


585.39 


604.54 


623.24 


44 


451.85 


473.70 


495.27 


516.51 


537.37 


557.80 


577.78 


597.28 


616.33 


634.97 


45 


463.62 


485.61 


507.25 


528.51 


549.34 


569.69 


589.57 


608.98 


627.98 


646.62 


46 


475.32 


497.39 


519.08 


540.32 


561.09 


581.36 


601.16 


620.54 


639.55 


658.25 


47 


486.91 


509.04 


530.73 


551.93 


572.62 


592.84 


612.62 


632.03 


651.12 


669.94 


48 


498.35 


520.51 


542.17 


563.32 


583.97 


6Q4.18 


624.01 


643.52 


662.75 


681.71 


49 


509.63 


531.78 


553.40 


574.53 


595.20 


615.48 


635.43 


655.10 


674.49 


693.59 


50 


520.71 


542.85 


564.47 


585.63 


606.39 


626.81 


646.95 


666.80 


686.35 


705.61 


51 


531.61 


553.76 


575.44 


596.71 


617.64 


638.27 


658.60 


678.64 


698.37 


717.64 


52 


542.35 


564.59 


586.40 


607.86 


629.02 


649.88 


670.42 


690.66 


710.42 


729.74 


53 


553.02 


575.41 


597.44 


619.16 


640.57 


661.67 


682.44 


702.72 


722.56 


742.03 


54 


563.69 


586.33 


608.65 


630.65 


652.33 


673.67 


694.52 


714.90 


734.91 


754.74 


55 


574.48 


597.43 


620.07 


642.37 


664.32 


685.76 


706.73 


727.31 


747.71 


768.01 


56 


585.47 


608.77 


631.73 


654.34 


676.42 


698.01 


719.20 


740.21 


761.11 


781.73 


57 


596.71 


620.38 


643.69 


666.45 


688.70 


710.55 


732.20 


753.75 


775.00 


795.58 


58 


608.25 


632.31 


655.79 


678.76 


701.30 


723.64 


745.89 


767.81 


789.04 


809.11 


59 


620.13 


644.40 


668.12 


691.41 


714.49 


737.47 


760.13 


782.06 


802.80 


822.31 


60 


632.21 


656.75 


680.84 


704.71 


728.48 


751.91 


774.59 


796.04 


816.22 


835.67 


61 


644.58 


669.52 


694.24 


718.85 


743.11 


766.60 


788.81 


809.71 


829.84 


849.56 


62 


657.42 


683.04 


708.55 


733.70 


758.05 


781.07 


802.73 


823.61 


844.05 


863.10 


63 


671.04 


697.42 


723.62 


748.89 


772.79 


795.27 


816.93 


838.15 


857.91 


874.03 


64 


685.70 


712.82 


739.08 


763.90 


787.27 


809.78 


831.82 


852.36 


869.11 


884.81 


65 


701.24 


728.56 


754.39 


778.69 


802.11 


825.04 


846.41 


863.83 


880.17 


894.76 


66 


717.29 


744.19 


769.50 


793.89 


817.78 


840.03 


858.18 


875.19 


890.39 




67 


733.26 


759.65 


785.08 


809.99 


833.20 


852.12 


869.86 


885.75 






68 


749.09 


775.64 


801.65 


825.87 


845.62 


864.14 


880.69 








69 


765.53 


792.70 


818.02 


838.66 


858.02 


875.31 










70 


783.12 


809.61 


831.21 


851.45 


869.54 








. 1 • • 


, , , , 



30S 



FALLACIES OF LIFE INSURANCE. 





31st 


32d 


33d 


34th 


35th 


36th 


37th 


38th 


39th 


40th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 




% 


S 


$ 


S 


$ 


$ 


$ 


$ 


$ 


S 


20 


351.17 


367.34 


383.71 


400.27 


416.98 


433.81 


450.74 


467.74 


484.80 


501.87 


21 


362.82 


379.31 


395.99 


412.81 


429.77 


446.82 


463.94 


481.12 


498.31 


515.49 


22 


374.71 


391.51 


408.46 


425.54 


442.71 


459.97 


477.27 


494.59 


511.89 


529.15 


23 


386.82 


403.90 


421.10 


438.42 


455.81 


473.24 


490.70 


508.13 


525.52 


542.82 


24 


399.12 


416.17 


433.92 


451.45 


469.02 


486.61 


504.19 


521.71 


539.16 


556.49 


25 


411.61 


429.20 


446.87 


464.60 


482.33 


500.06 


517.73 


535.32 


552.79 


570.12 


26 


424.25 


442.07 


459.95 


477.84 


495.72 


513.54 


531.28 


548.91 


566.39 


583.68 


27 


437.04 


455.08 


473.13 


491.17 


509.15 


527.05 


544.84 


562.48 


579.92 


597.14 


28 


449.96 


468.18 


486.39 


504.54 


522.61 


540.57 


558.37 


575.98 


593.35 


610.47 


29 


462.98 


481.36 


499.70 


517.94 


536.07 


554.05 


571.83 


589.38 


606.65 


623.62 


30 


476.08 


494.60 


513.03 


531.35 


549.51 


567.47 


585.20 


602.65 


619.74 


636.59 


31 


489.24 


507.87 


526.38 


544.73 


562.88 


580.80 


598.44 


615.76 


632.73 


649.32 


32 


502.43 


521.14 


539.70 


558.05 


576.16 


594.00 


611.51 


628.67 


645.45 


661.82 


33 


515.63 


534.40 


552.69 


571.28 


589.32 


607.04 


624.40 


641.37 


657.93 


674.11 


34 


528.81 


547.60 


566.14 


584.40 


602.33 


619.89 


637.06 


653.83 


670.20 


686.22 


35 


541,94 


560.71 


579.20 


597.35 


615.14 


632.52 


649.50 


666.07 


682.30 


698.21 


36 


554.98 


573.71 


592.09 


610.11 


627.73 


644.92 


661.71 


678.15 


694.28 


710.14 


37 


567.91 


586.54 


604.81 


622.66 


640.09 


657.11 


673.77 


690.12 


706.20 


722.05 


38 


580.68 


599.20 


617.31 


634.98 


652.25 


659.14 


685.72 


702.03 


718.10 


733.95 


39 


593.27 


611.64 


629.58 


647.10 


664.24 


681.07 


697.62 


713.93 


730.01 


745.86 


40 


605.64 


623.86 


641.65 


659.06 


676.14 


692.94 


709.51 


725.84 


741.93 


757.78 


41 


617.80 


635.87 


653.56 


670.92 


688.00 


704.83 


721.42 


737.77 


753.87 


769.59 


42 


629.75 


647.73 


665.38 


682.75 


699.86 


716.74 


733.36 


749.73 


765.72 


781.35 


43 


641.55 


659.51 


677.17 


694.59 


711.76 


728.68 


745.34 


761.60 


777.51 


793.12 


44 


653.26 


671.25 


688.98 


706.47 


723.70 


740.66 


757.23 


773.42 


789.32 


805.08 


45 


664.95 


683.03 


700.85 


718.41 


735.70 


752.58 


769.08 


785.29 


801.35 


817.34 


46 


676.96 


694.86 


712.77 


730.41 


747.63 


764.47 


780.99 


797.38 


813.68 


829.76 


47 


688.50 


706.78 


724.78 


742.36 


759.55 


776.42 


793.15 


809.80 


826.21 


842.10 


48 


700.39 


718.79 


736.75 


754.31 


771.56 


788.64 


805.66 


822.42 


838.66 


854.01 


49 


712.41 


730.78 


748.74 


766.37 


783.85 


801.24 


818.39 


835.00 


850.70 


865.47 


50 


724.41 


742.80 


760.85 


778.74 


796.55 


814.10 


831.10 


847.17 


862.29 


876.86 


51 


736.48 


754.97 


773.30 


791.54 


809.53 


826.95 


843.41 


858.91 


873.84 


888.46 


52 


748.70 


767.50 


786.21 


804.66 


822.52 


839.41 


855.30 


870.61 


885.61 


899.58 


53 


761.32 


780.53 


799.47 


817.81 


835.14 


851.45 


867.17 


882.57 


896.91 


908.60 


54 


774.47 


793.94 


812.78 


830.59 


847.35 


863.51 


879.33 


894.06 


906.08 


917.35 


55 


788.03 


807.41 


825.73 


842.98 


859.60 


875.87 


891.03 


903.39 


914.98 


925.33 


56 


801.69 


820.55 


830.31 


855.42 


872.18 


887.79 


900.52 


912.45 


923.11 




57 


815.02 


833.33 


850.97 


868.24 


884.33 


897.45 


909.75 


920.74 






58 


828.00 


846.20 


864.03 


880.63 


894.17 


906.87 


918.21 








59 


841.11 


859.53 


876.68 


890.67 


903.79 


915.50 










60 


854.71 


872.46 


886.93 


900.49 


912.61 












61 


867.94 


882.92 


869.96 


909.51 














62 


878.63 


893.19 


906.19 
















63 


889.14 


902.64 


















64 


898.84 





















TABLES. 



307 



333. Reserve Values per $1000, Twenty-Payment Life 
Policies, American Experience, 3 Per Cent. 



A<3E. 



1st 

Year. 



2d 

Year. 



3d 

Year. 



4th 

Year. 



5th 

Year. 



6th 

Year. 



7th 

Year. 



8th 

Year. 



9th 

Year. 



10th 
Year. 



20 
21 
22 
23 
24 

25 
26 
27 
28 
29 

30 
31 
32 
33 
34 

35 
36 
37 
38 
39 

40 
41 
42 
43 
44 

45 
46 
47 
48 
49 

50 
51 
52 
53 
54 
55 



$ 

16.15 
16.46 
16.78 
17.11 
17.45 

17.81 
18.17 
18.55 
18.94 
19.33 

19.74 
20.17 
20.61 
21.05 
21.51 

22.00 
22.48 
22.99 
23.50 
24.04 

24.58 
25.16 
25.75 
26.36 
26.97 

27.62 
28.26 
28.92 
29.58 
30.23 

30.8^ 
31.54 
32.21 
32.88 
33.56 
34.24 



$ 

32.86 
33.49 
34.14 
34.82 
35.52 

36.24 
36.97 
37.74 
38.52 
39.33 

40.17 
41.03 
41.91 
42.81 
43.75 

44.72 
45.71 
46.72 

47.77 
48.84 

49.95 
51.10 
52.29 
53.50 
54.74 

56.00 

57.28 
58.58 
59.87 
61.15 

62.42 
63.71 
65.01 
66.31 
67.61 
68.93 



g 

50.16 
51.12 
52.12 
53.15 
54.22 

55.31 
56.44 
57.60 
58.79 
60.02 

61.30 
62.60 
63.93 
65.32 
66.74 

68.20 
69.69 
71.23 
72.81 
74.44 

76.11 

77.85 
79.62 
81.44 
8a.29 

85.17 
87.07 
88.97 
90.86 
92.73 

94.61 
96.49 
98.37 
100.27 
102.16 
104.06 



$ 

68.07 
69.38 
70.74 
72.13 
73.57 

75.06 
76.58 
78.15 
79.77 
81.43 

83.14 
84.90 
86.71 
88.57 
90.49 

92.46 
94.47 
96.53 
98.66 
100.85 

103.10 
105.42 
107.78 
110.20 
112.65 

115.13 
117.61 
120,09 
122.55 
124.99 

127.43 
129.87 
132.31 
134.75 
137.18 
139.62 



S 

86.62 
88.29 
90.01 
91.78 
93.61 

95.49 
97.42 
99.42 
101.47 
103.57 

105.74 
107.98 
110.26 
112.62 
115.03 

117.52 
120.05 
122.66 
125.34 
128.10 

130.92 
133.82 
136.77 
139.78 
142.81 

145.86 
148.90 
151.93 
154.94 
157.93 

160.90 
163.87 
166.82 
169.76 
172.69 
175.61 



105.84 
107.87 
109.96 
112.13 
114.35 

116.64 
119.00 
121.43 
123.92 
126.48 

129.13 
131.83 
134.62 
137.47 
140.40 

143.40 
146.48 
149.64 

152.88 
156.20 

159.60 
163.08 
166.61 
170.19 
173.77 

177.37 
180.95 
184.51 
188.05 
191.55 

195.02 
198.47 
201.90 
205.30 
208.67 
212.02 



S 
125.73 
128.14 
130.63 
133.19 
135.82 

138.54 
141.33 
144.20 
147.15 
150.19 

153.31 
156.51 
159.79 

lea.is 

166.60 

170.14 
173.76 
177.49 
181.29 
185.19 

189.16 
193.20 
197.30 
201.42 
205.55 

209.67 
213.77 
217.85 

221.87 
225.86 

229.80 
233.70 
237.57 
241.39 
245.15 
248.86 



$ 
146.33 
149.13 
152.02 
154.99 
158.05 

161.21 
164.44 
167.77 
171.19 
174.40 

178.a2 
182.02 
185.81 
189.69 
193.68 

197.77 
201.95 
206.23 
210.60 
215.06 

219.60 
224.21 
228.85 
233.50 
238.15 

242.78 
247.38 
251.94 
256.44 
260.88 

265.26 
269.59 
273.85 
278.04 
282.14 
286.17 



$ 
167.67 
170.87 
174.17 
177.57 
181.07 

184.66 
188.36 
192.16 
196.06 
200.07 

204.18 
208.40 
212.71 
217.13 
221.66 

226.31 
231.05 
235.90 
240.83 
245.86 

250.96 
256.10 
261.27 
266.43 
271.59 

276.72 
281.80 
286.83 
291.78 
296.64 

301.44 
306.15 
310.77 
315.28 
319.69 
323.99 



$ 
189.76 
193.38 
197.11 
200.95 
204.89 

208.95 
213.12 
217.40 
221.80 
226.31 

230.94 
235.67 
240.52 
245.49 
250.58 

255.78^ 
261.10 
266.51 
272.01 
277.60 

283.23 
288.90 
294.58 
300.26 
305.91 

311.52 
317.06 
322.53 
327.91 
333.19 

338.37 
343.43 
348.37 
353.18 
357.85 
362.37 



30S 



FALLACIES OF LIFE INSURANCE. 





11th 


12th 


13th 


14th 


i5i:i 


16th 


17th 


18th 


19th 


20th 


Age. 


Year. 


Year. 


^ Year. 


Year: 


Year. 


Year. 


Year. 


Year. 


Tear. 


Year. 




$ 


$ 


S 


S 


$ 


S 


$ 


$ 


S 


- S 


20 


212.64 


236.35 


260.90 


286.33 


312.68 


339.98 


368.26 


397.57 


427.94 


459.42 


21 


216.69- 


240.84 


265.85 


291.75 


318.58 


346.38 


375.18 


405.02 


435.95 


468.00 


22 


220.86 


245.46 


270.93 


297.32 


324.65 


352.97 


382.29 


412.68 


444.16 


476.80 


23 


225.15 


250.21 


276.17 


303.05 


330.89 


359.72 


389.59 


420.53 


452.60 


485.83 


24 


229.56 


255.10 


281.55 


308.93 


337.29 


366.66 


397.08 


428.59 


461.25 


495,10 


25 


234.09 


260.12 


287.07 


314.97 


343.86 


373.77 


404.76 


436.85 


470.12 


504.59 


26 


238.75 


265.28 


292.73 


321.16 


350.59 


381.06 


412.62 


445.32 


479.19 


514.30 


27 


243.53 


270.56 


298.55 


327.51 


357.49 


388.54 


420.69 


453.99 


488.49 


524.23 


28 


248.43 


275.99 


304.50 


334.01 


354.56 


396.19 


428.93 


462.85 


497.97 


534.37 


29 


253.46 


281.54 


310.60 


340.67 


371.80 


404.01 


437.36 


471.89 


507.65 


544.70 


30 


258.61 


287.23 


316.85 


347.49 


379.19 


412.01 


445.97 


481.12 


517.52 


555.22 


31 


263.88 


293.06 


323.24 


354.46 


386.75 


420.16 


454.73 


490.51 


527.54 


565.89 


32 


269.28 


299.02 


329.77 


361.57 


394.45 


428.46 


463.64 


500.03 


537.70 


576.71 


33 


274.81 


305.11 


336.44 


368.82 


402.30 


436.90 


472.68 


509.69 


547.99 


587.67 


34 


280.46 


311.34 


343.24 


376.20 


410.27 


445.46 


481.83 


519.45 


558.39 


598.74 


35 


286.24 


317.68 


350.16 


383.70 


418.33 


454.11 


491.07 


529.31 


568.89 


609.92 


36 


292.11 


324.13 


357.18 


391.28 


426.48 


462.83 


500.39 


539.24 


579.47 


621.18 


37 


298.09 


330.67 


364.27 


398.93 


434.69 


471.61 


509.76 


549.23 


590.10 


632.51 


38 


304.15 


337.28 


371.42 


406.63 


442.94 


480.43 


519.17 


559.25 


600.77 


643.89 


39 


310.28 


343.94 


378.62 


414.36 


451.23 


489.27 


528.59 


569.28 


611.47 


655.30 


40 


316.44 


350.63 


385.84 


422.11 


459.51 


498.11 


538.00 


579.31 


622.16 


666.72 


41 


322.63 


357.34 


393.06 


429.85 


467.78 


506.92 


547.39 


589.30 


632.82 


678.13 


42 


328.82 


364.03 


400.26 


437.55 


475.99 


515.68 


556.71 


599.24 


643.44 


689.50 


43 


335.00 


370.70 


407.41 


445.20 


484.15 


524.36 


555.96 


609.10 


653.97 


700.83 


44 


341.13 


377.31 


414.49 


452.76 


492.20 


532.93 


575.09 


618.84 


664.41 


712.08 


45 


347.21 


383.84 


421.49 


460.22 


500.15 


541.38 


584.08 


628.45 


674.73 


723.24 


46 


353.20 


390.28 


428.37 


467.55 


507.94 


549.66 


592.90 


637.89 


684.90 


734.27 


47 


359.11 


396.62 


435.12 


474.73 


515.55 


557.75 


601.53 


647.14 


694.88 


745.16 


48 


364.90 


402.81 


441.71 


481.72 


522.96 


565.63 


609.94 


656.16 


704.66 


755.88 


49 


370.57 


408.85 


448.12 


488.50 


530.15 


573.27 


618.08 


664.92 


714.19 


766.41 


50 


376.11 


414.73 


454.34 


495.08 


537.10 


580.63 


625.94 


673.40 


723.46 


776.73 


51 


381.50 


420.43 


460.36 


501.41 


543.77 


587.69 


633.48 


681.55 


732.44 


786.82 


52 


386.74 


425.96 


466.15 


507.47 


550.14 


594.42 


640.67 


689.36 


741.09 


796.67 


53 


391.81 


431.27 


471.69 


513.25 


556.18 


600.78 


647.47 


696.78 


749.41 


806.28 


54 


396.71 


436.36 


476.95 


518.70 


561.84 


606.74 


653.85 


703.79 


757.38 


815.69 


55 


401.39 


441.19 


481.92 


523.79 


567.10 


612.25 


659.78 


710.39 


765.04 

: 


824.93 



TABLES. 



309 



334. Reserve Values per $1000, Ordinary Life Pol- 
icies, American Experience, 31/2 Per Cent. 





1st 


2nd 


3rd 


4th 


5th 


6th 


7th 


8th 


9th 


10th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


20 


S6.19 


112.60 


$19.24 


$26.11 


$33.23 


$40.61 


$48.24 


$56.14 


$64.32 


$72.78 


21 


6.45 


13.13 


20.04 


27.21 


34.63 


42.31 


50.26 


58.49 


67.00 


75.82 


22 


6.72 


13.68 


20.89 


28.36 


36.09 


44.09 


52.38 


60.95 


69.82 


79.00 


23 


7.01 


14.27 


21.79 


29.57 


37.62 


45.97 


54.59 


63.52 


72.76 


82.32 


24 


7.31 


14.88 


22.72 


30.83 


39.23 


47.92 


56.91 


66.22 


75.85 


85.79 


25 


7.63 


15.52 


23.70 


32.16 


40.91 


49.97 


59.35 


69.04 


79.06 


89.42 


26 


7.96 


16.19 


24.72 


33.54 


42.67 


52.12 


61.89 


71.98 


82.42 


93.21 


27 


8.30 


16.90 


25.79 


34.99 


44.51 


54.36 


64.54 


75.06 


85.94 


97.17 


28 


8.67 


17.03 


26.91 


36.52 


46.45 


56.71 


67.32 


78.29 


89.62 


101.31 


29 


9.04 


18.40 


28.09 


38.11 


48.46 


59.16 


70.23 


81.66 


93.46 


105.63 


30 


9.45 


19.22 


29.33 


39.78 


50.58 


61.74 


73.27 


85.18 


97.46 


110.14 


31 


9.87 


20.08 


30.62 


41.52 


52.80 


64.44 


76.46 


88.86 


101.65 


114.84 


32 


10.31 


20.96 


31.97 


43.36 


55.11 


67.26 


79.78 


92.70 


106.01 


119.74 


33 


10.76 


21.89 


33.39 


45.27 


57.54 


70.19 


83.25 


96.70 


110.57 


124.86 


34 


11.25 


22.88 


34.89 


47.29 


60.08 


73.27 


86.87 


100.90 


115.34 


130.20 


35 


11.76 


23.91 


36.45 


49.39 


62.73 


76.49 


90.67 


105.27 


120.31 


135.76 


36 


12.29 


24.98 


38.07 


51.58 


65.50 


79.84 


94.62 


109.84 


125.48 


141.55 


37 


12.85 


26.10 


39.78 


53.87 


68.40 


83.36 


98.76 


114.60 


130.87 


147.56 


38 


13.43 


27.28 


41.55 


56.27 


71.43 


87.03 


103.07 


119.56 


136.47 


153.79 


39 


14.04 


28.51 


43.43 


58.79 


74.61 


90.87 


107.58 


124.71 


142.28 


160.25 


40 


14.68 


29.80 


45.39 


61.43 


77.92 


94.87 


112.25 


130.06 


148.29 


166.89 


41 


15.36 


31.17 


47.45 


64.19 


81.39 


99.03 


117.11 


135.60 


154.48 


173.71 


42 


16.06 


32.60 


49.59 


67.06 


84.98 


103.34 


122.12 


141.29 


160.82 


180.68 


43 


16.81 


34.08 


51.84 


70.04 


88.70 


107.79 


127.28 


147.12 


167.31 


187.81 


44 


17.57 


35.63 


54.15 


73.13 


92.54 


112.36 


132.54 


153.08 


173.93 


195.08 


45 


18.38 


37.23 


56.55 


76.32 


96.48 


117.03 


137.93 


159.16 


180.68 


202.47 


46 


19.20 


38.89 


59.02 


79.57 


100.50 


121.79 


143.41 


165.34 


187.54 


209.98 


47 


20.07 


40.60 


61.54 


82.89 


104.59 


126.64 


149.00 


171.63 


194.51 


217.58 


48 


20.95 


42.33 


64.10 


86.26 


108.76 


131.57 


154.67 


178.01 


201.56 


225.28 


49 


21.84 


44.08 


66.71 


89.69 


112.99 


136.58 


160.42 


184.48 


208.71 


233.07 


50 


22.74 


45.87 


69.37 


93.19 


117.31 


141.68 


166.27 


191.04 


215.96 


240.96 


51 


23.67 


47.71 


72.09 


96.77 


121.71 


146.87 


172.22 


197.71 


223.30 


248.93 


52 


24.62 


49.59 


74.87 


100.42 


126.19 


152.15 


178.26 


204.47 


230.72 


256.97 


53 


25.60 


51.52 


77.71 


104.13 


130.74 


157.52 


184.38 


211.30 


238.21 


265.07 


54 


26.59 


53.48 


80.59 


107.91 


135.38 


162.95 


190.58 


218.20 


245.76 


273.22 


55 


27.62 


55.47 


83.53 


111.76 


140.08 


168.46 


196.84 


225.15 


253.36 


281.41 


56 


28.65 


57.51 


86.53 


115.66 


144.85 


174.03 


203.15 


232.16 


261.00 


289.59 


57 


29.71 


59.59 


89.58 


119.63 


149.67 


179.65 


209.51 


239.20 


268.64 


297.76 


58 


30.80 


61.71 


92.67 


123.63 


154.53 


185.31 


215.91 


246.a| 
253.2B 


276.26 


305.88 


59 


31.89 


63.84 


95.78 


127.66 


159.42 


190.99 


222.29 


283.82 


313.90 


60 


33.00 


66.00 


98.93 


131.73 


164.34 


196.67 


228.66 


260.23 


291.30 


321.81 


61 


34.12 


68.17 


102.10 


135.82 


169.26 


202.33 


234.98 


267.11 


298.67 


329.57 


62 


35.36 


70.38 


105.30 


139.91 


174.16 


207.96 


241.22 


273.89 


305.S9 


337.19 


63 


36.41 


72.60 


108.48 


143.98 


179.01 


213.49 


247.36 


280.53 


312.97 


344.72 


64 


37.56 


74.80 


111.63 


147.99 


183.77 


218.92 


253.34 


287.01 


319.96 


352.28 


65 


38.69 


76.96 


114.74 


151.92 


188.44 


224.20 


259.19 


293.43 


327.00 


360.01 


66 


39.82 


79.11 


117.79 


155.78 


192.98 


229.37 


264.99 


299.91 


334.26 


368.11 


67 


40.93 


81.21 


120.77 


159.52 


197.42 


234.51 


270.88 


306.65 


341.90 


376.73 


68 


42.00 


83.25 


123.65 


163.17 


201.84 


239.77 


277.06 


313.82 


350.13 


386.01 


69 


43.06 


85.23 


126.48 


166.85 


206.44 


245.37 


283.74 


321.64 


359.09 


396.01 


70 


44.07 


87.18 


129.37 


170.74 


211.41 


251.51 


291.12 


330.25 


368.S9 


407.01 



310 



FALLACIES OF LIFE INSURANCE. 





nth 


12th 


13th 


14th 


15th 


16th 


17th" 


18th 


19th 


20th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


20 


$81.54 


$90.60 


S99.98 


$109.66 


$119.68 


$130.03 


$140.72 


$151.77 


$163.15 


$174.90 


21 


84.94 


94.37 


104.12 


114.19 


124.61 


135.37 


146.18 


157.94 


169.76 


196.90 


22 


88.49 


98.30 


108.44 


118.93 


129.76 


140.94 


152.47 


164.37 


176.63 


189.28 


23 


92.20 


102.41 


112.97 


123.87 


135.13 


146.74 


158.72 


171.06 


183.79 


181.94 


24 


96.08 


106.71 


117.69 


129.02 


140.72 


152.78 


165.22 


178.03 


191.23 


204.82 


25 


100.13 


111.19 


122.61 


134.39 


146.54 


159.07 


171.98 


185.28 


198.97 


213.04 


26 


104.36 


115.87 


127.74 


138.98 


152.60 


165.61 


179.02 


192.81 


206.99 


221.57 


27 


108.77 


120.74 


133.09 


145.81 


158.92 


172.43 


186.34 


200.63 


215.33 


230.40 


28 


113.38 


125.83 


138.66 


151.88 


165.50 


179.53 


193.94 


208.76 


223.95 


239.53 


29 


118.18 


131.13 


144.47 


158.21 


172.35 


186.90 


201.84 


217.17 


232.88 


248.95 


30 


123.20 


136.66 


150.52 


164.80 


179.47 


194.56 


210.02 


225.88 


242.09 


258.64 


31 


128.43 


142.42 


156.84 


171.65 


186.88 


202.49 


218.50 


234.87 


251.57 


268.59 


32 


133.88 


148.43 


166.39 


178.77 


194.54 


210.71 


227.24 


244.11 


261.30 


278.79 


33 


139.56 


154.68 


170.22 


186.15 


202.49 


219.19 


236.24 


253.61 


271.28 


289.22 


34 


145.48 


161.19 


177.30 


193.81 


210.70 


227.93 


245.49 


263.35 


281.49 


299.88 


35 


151.65 


167.94 


184.64 


201.72 


219.15 


236.91 


254.97 


273.31 


291.92 


310.75 


36 


158.04 


174.93 


192.22 


209.85 


227.82 


246.10 


264.66 


283.49 


302.54 


321.80 


37 


164.67 


182.17 


200.02 


218.22 


236.72 


255.52 


274.57 


293.87 


313.37 


333.04 


38 


171.52 


189.61 


208.04 


226.78 


245.82 


265.13 


284.68 


304.43 


324.36 


344.43 


39 


178.58 


197.26 


216.26 


235.56 


255.13 


274.94 


294.96 


315.16 


335.51 


355.97 


40 


185.83 


205.10 


224.68 


244.52 


264.62 


284.92 


305.41 


326.04 


346.80 


367.63 


41 


193.26 


213.13 


233.27 


253.66 


274.27 


295.06 


316.01 


337.07 


358.21 


379.39 


42 


200.86 


221.32 


242.02 


262.96 


284.07 


305.34 


326.73 


348.20 


369.72 


391.22 


43 


208.61 


229.65 


250.93 


272.39 


294.00 


315.74 


337.57 


359.43 


381.29 


403.10 


44 


216.49 


238.12 


259.95 


281.93 


304.05 


326.24 


348.48 


370.71 


392.90 


415.00 


45 


224.50 


246.71 


269.09 


291.60 


314.19 


336.83 


359.46 


382.04 


404.54 


426.90 


46 


232.61 


255.41 


278.34 


301.35 


324.41 


347.46 


370.47 


393.39 


416.17 


438.76 


47 


240.83 


264.21 


287.67 


311.18 


334.68 


358.14 


381.51 


404.74 


427.77 


450.55 


48 


249.14 


273.09 


297-.08 


321.06 


345.00 


368.84 


392.55 


416.17 


439.30 


462.25 


49 


257.53 


282.04 


306.53 


330.96 


355.34 


379.55 


403.56 


427.77 


450.74 


473.81 


50 


266.01 


291.05 


316.05 


340.95 


365.70 


390.21 


414.52 


438.48 


462.07 


485.23 


51 


274.56 


300.13 


325.61 


350.94 


376.05 


400.90 


425.42 


449.55 


473.25 


496.46 


52 


283.16 


309.26 


335.21 


360.93 


386.37 


411.49 


436.20 


460.48 


484.26 


507.51 


53 


291.83 


318.42 


344.79 


370.88 


396.63 


421.97 


446.86 


471.24 


495.08 


518.42 


54 


300.52 


327.58 


354.35 


380.78 


406.78 


432.32 


457.34 


481.81 


505.76 


529.25 


55 


309.21 


336.71 


363.86 


390.58 


416.82 


442.52 


467.66 


492.26 


516.39 


540.11 


56 


317.88 


345.79 


373.27 


400.25 


426.68 


452.54 


477.84 


502.65 


527.05 


551.10 


57 


326.50 


354.78 


382.57 


409.78 


436.39 


462.44 


487.98 


513.10 


537.86 


562.31 


58 


335.03 


363.66 


391.70 


419.13 


445.98 


472.31 


498.19 


523.71 


548.91 


573.81 


59 


343.44 


372.37 


400.68 


428.38 


455.54 


482.25 


508.57 


534.58 


560.27 


585.64 


60 


351.70 


380.93 


409.55 


437.60 


465.19 


492.38 


519.24 


545.78 


571.99 


597.84 


61 


359.81 


389.40 


418.41 


446.94 


475.06 


502.84 


530.28 


557.38 


584.12 


610.28 


62 


367.82 


397.86 


427.40 


456.51 


485.27 


513.69 


541.74 


569.43 


596.51 


623 04 


63 


375.86 


406.48 


436.65 


466.46 


495.92 


525.00 


553.69 


581.76 


609.27^ 


636.32 


64 


384.05 


415.37 


446.30 


476.87 


507.05 


536.83 


565.96 


594.51 


622.58 


650.46 


65 


392.55 


424.70 


456.46 


487.81 


518.75 


542.02 


578.68 


607.85 


636.82 


665.71 


66 


401.54 


434.58 


467.20 


499.39 


530.87 


561.72 


592.07 


622.20 


652.26 


681.96 


67 


411.14 


445.10 


478.63 


511.42 


543.55 


575.15 


606.53 


637.84 


668.77 


698.77 


68 


421.43 


456.38 


490.57 


524.07 


557.02 


589.74 


622.39 


654.63 


685.92 


715.54 


69 


432.55 


468.24 


503.21 


537.60 


571.76 


605.83 


639.49 


672.15 


703.07 


732.21 


70 


444.31 


480.86 


516.79 


552.49 


588.10 


623.27 


657.39 


689.71 


720.17 


749.56 



TABLES. 



311 



' 


21st 


22nd 


23rd 


24th 


25th 


26th 


27th ~ 


28th 


29th 


30th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


20 


$187.01 


$199.49 


$212.35 


$225.59 


$239.19 


$253.18 


$267.52 


$282.22 


$297.25 


1312.60 


21 


194.51 


207.44 


220.76 


234.45 


248.52 


262.96 


277.75 


292.88 


308.32 


324.05 


22 


202.30 


215.70 


229.48 


243.65 


258.17 


273.06 


288.29 


303.83 


319.66 


335.76 


23 


210.40 


224.27 


238.53 


253.15 


268.14 


283.47 


299.11 


315.05 


331.27 


347.73 


24 


218.80 


233.16 


247.88 


262.97 


278.41 


294.17 


310.22 


326.55 


343.13 


359.95 


25 


227.51 


242.34 


257.55 


273.10 


288.97 


305.14 


321.59 


338.29 


355.23 


372.38 


26 


236.52 


251.84 


267.51 


283.51 


299.80 


316.37 


333.21 


350.28 


367.56 


385.02 


27 


245.84 


261.64 


277.76 


294.18 


310.89 


327.86 


345.07 


362.48 


380.09 


397.85 


28 


255.46 


271.71 


288.28 


305.12 


322.23 


339.58 


357.15 


374.90 


392.81 


410.85 


29 


265.35 


282.05 


299.05 


316.31 


333.81 


351.53 


369.43 


387.50 


405.70 


424.00 


30 


275.50 


292.65 


310.07 


327.73 


345.61 


363.68 


381.91 


400.27 


418.74 


437.28 


31 


285.90 


303.49 


321.32 


339.37 


357.61 


376.02 


394.55 


413.20 


431.91 


456.66 


32 


296.55 


314.56 


332.78 


351.21 


369.80 


388.52 


407.35 


426.25 


445.19 


454.12 


33 


307.42 


325.84 


344.45 


363.23 


382.15 


401.18 


420.27 


439.41 


458.54 


477.62 


34 


318.50 


337.32 


356.30 


375.43 


394.66 


413.97 


433.31 


452.64 


471.94 


491.17 


35 


329.78 


348.94 


368.32 


387.78 


407.30 


426.86 


446.42 


465.93 


485.38 


504.71 


36 


341.23 


360.81 


380.49 


400.25 


420.04 


439.83 


459.58 


479.25 


498.81 


518.20 


37 


352.85 


373.78 


392.79 


412.82 


432.86 


452.85 


472.77 


492.58 


512.21 


531.63 


38 


364.62 


384.88 


405.18 


425.48 


445.73 


465.91 


485.97 


505.86 


525.53 


544.95 


39 


376.51 


397.09 


417.66 


438.19 


458.64 


478.98 


499.13 


519.08 


538.76 


558.13 


40 


388.50 


409.37 


430.19 


450.93 


471.66 


492.00 


512.23 


532.19 


551.84 


571.14 


41 


400.57 


421.70 


442.76 


463.69 


484.44 


504.96 


525.22 


545.16 


564.75 


583.93 


42 


412.68 


434.07 


455.32 


476.40 


497.24 


517.82 


538.07 


557.96 


577.44 


596.50 


43 


424.83 


446.43 


467.85 


489.04 


509.95 


530.53 


550.75 


570.54 


589.91 


608.86 


44 


436.97 


458.75 


480.30 


501.57 


522.51 


543.07 


563.20 


582.90 


602.18 


621.08 


45 


449.07 


471.01 


492.56 


513.97 


534.89 


555.39 


575.44 


595.06 


614.30 


633.22 


46 


461.10 


483.16 


504.87 


526.19 


547.07 


567.49 


587.48 


607.08 


626.36 


645.35 


47 


473.04 


495.17 


516.91 


538.20 


559.02 


579.40 


599.39 


619.04 


638.41 


657.54 


48 


484.83 


507.02 


528.74 


549.99 


570.79 


591.19 


611.24 


631.01 


650.53 


659.82 


49 


496.47 


518.66 


540.36 


561.61 


582.44 


602.92 


623.11 


643.05 


662.76 


682.21 


50 


507.91 


530.10 


551.82 


573.12 


594.06 


614.70 


635.09 


655.23 


675.12 


694.75 


51 


519.17 


541.39 


563.18 


584.61 


605.73 


626.29 


647.21 


657.56 


687.64 


707.29 


52 


530.27 


552.59 


574.54 


596.17 


617.54 


638.66 


659.50 


680.07 


700.19 


719.91 


53 


541.30 


553.80 


585.98 


607.89 


629.53 


650.90 


671.99 


692.63 


712.84 


732.72 


54 


552.34 


575.10 


597.58 


619.80 


641.73 


663.38 


684.55 


705.29 


725.70 


745.96 


55 


563.49 


586.59 


609.41 


631.94 


654.18 


675.93 


697.24 


718.20 


739.02 


759.78 


56 


574.85 


598.32 


621.49 


644.36 


666.73 


688.64 


710.20 


731.61 


752.96 


774.06 


57 


586.47 


610.33 


633.87 


656.90 


679.46 


701.65 


623.69 


745.68 


767.40 


788.46 


58 


598.40 


622.66 


646.39 


669.65 


692.52 


715.23 


737.89 


760.27 


781.99 


802.55 


59 


610.67 


635.16 


659.15 


682.75 


706.18 


729.56 


752.66 


775.06 


796.28 


816.27 


60 


623.14 


647.92 


672.30 


696.50 


720.65 


744.51 


767.65 


789.57 


810.22 


830.16 


61 


635.91 


661.11 


686.14 


711.12 


735.79 


759.72 


782.38 


803.74 


824.36 


844.59 


62 


649.14 


675.06 


791.00 


726.45 


751.23 


774.70 


796.81 


818.16 


839.10 


858.64 


63 


663.18 


689.98 


716.46 


742.14 


766.46 


789.38 


811.51 


833.22 


853.47 


870.01 


64 


678.27 


705.75 


732.40 


757.64 


781.43 


804.39 


826.91 


847.93 


865.09 


881.20 


65 


694.26 


721.95 


748.18 


772.90 


796.75 


820.16 


842.00 


859.83 


876.56 


891.53 


66 


710.76 


738.05 


753.76 


788.57 


812.92 


835.64 


854.19 


871.59 


887.17 




67 


727.18 


753.96 


779.81 


805.16 


828.83 


848.14 


866.27 


882.49 






68 


743.46 


770.41 


796.85 


821.52 


841.66 


860.56 


877.47 








69 


760.35 


787.94 


813.70 


834.72 


854.45 


872.10 










70 


778.40 


805.31 


827.28 


847.90 


866.35 













312 



FALLACIES OF LIFE INSURANCE. 





31st 


32d 


33d 


34th 


35th 


36th 


37th 


38th 


39th 


40th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 




S 


$ 


$ 


$ 


$ 


$ 


$ 


S 


$ 


$ 


20 


328.23 


344.13 


360.28 


376.66 


393.24 


409.99 


426.89 


443.92 


461.05 


478.23 


21 


340.04 


356.29 


372.77 


389.46 


406.32 


423.32 


440.46 


457.69 


474.98 


492.31 


22 


352.12 


368.70 


385.49 


402.46 


419.58 


436.82 


454.17 


471.57 


489.01 


506.45 


23 


364.43 


381.33 


398.42 


415.65 


433.01 


450.47 


468.00 


485.56 


503.11 


520.83 


24 


376.97 


394.17 


411.53 


429.01 


446.60 


464.25 


481.93 


499.60 


517.25 


534.82 


25 


389.71 


407.20 


424.81 


442.52 


460.30 


478.11 


495.92 


513.69 


531.40 


549.00 


26 


402.64 


420.39 


438.24 


456.15 


474.10 


492.04 


509.95 


527.79 


545.53 


563.11 


27 


415.74 


433.73 


451.79 


469.88 


487.07 


506.02 


524.01 


541.88 


559.61 


577.14 


28 


428.99 


447.20 


465.44 


483.68 


501.89 


520.02 


538.05 


555.92 


573.60 


591.06 


29 


442.37 


460.77 


479.17 


497.53 


515.83 


534.01 


552.04 


569.88 


587.48 


604.80 


30 


455.85 


474.42 


492.95 


511.41 


529.76 


547.95 


555.95 


583.71 


601.20 


618.37 


31 


469.41 


488.11 


506.75 


525.27 


543.54 


561.81 


579.75 


596.39 


614.73 


631.71 


32 


483.01 


501.83 


520.54 


539.09 


557.44 


575.56 


593.38 


610.89 


628.04 


644.81 


33 


496.64 


515.55 


534.29 


552.83 


571.14 


589.15 


606.84 


624.16 


641.11 


657.70 


34 


510.28 


529.22 


547.97 


566.47 


584.68 


602.56 


620.08 


637.21 


653.98 


670.42 


35 


523.87 


542.83 


561.54 


579.95 


598.04 


615.75 


633.08 


650.04 


666.67 


683.02 


36 


537.39 


556.32 


574.95 


593.25 


611.18 


628.71 


645.87 


662.70 


679.25 


695.55 


37 


550.80 


569.66 


588.19 


606.34 


624.09 


641.47 


658.50 


675.26 


691.77 


708.08 


38 


564.06 


582.83 


601.22 


619.20 


636.80 


654.06 


671.03 


687.75 


704.28 


720.60 


39, 


577.16 


595.79 


614.02 


631.86 


649.35 


666.55 


683.51 


700.25 


716.80 


733.14 


40 


590.04 


608.52 


626.62 


644.36 


661.80 


679.00 


695.98 


712.77 


729.34 


745.69 


41 


602.69 


621.05 


639.06 


656.77 


674.22 


691.46 


708.49 


725.31 


741.90 


758.14 


42 


615.50 


633.43 


651.41 


659.14 


686.65 


703.94 


721.02 


737.88 


754.36 


770.52 


43 


627.45 


645.72 


663.74 


681.53 


699.11 


716.47 


733.60 


750.35 


766.77 


782.92 


44 


639.67 


657.99 


676.09 


693.97 


711.62 


729.04 


746.09 


762.79 


779.31 


795.52 


45 


651.87 


670.29 


688.50 


706.47 


724.20 


741.55 


758.54 


775.26 


791.86 


808.42 


46 


664.12 


682.66 


700.97 


719.03 


736.71 


754.02 


771.05 


787.96 


804.83 


821.50 


47 


676.45 


695.11 


713.53 


731.55 


749.21 


766.57 


783.81 


801.01 


818.01 


834.49 


48 


688.87 


707.67 


726.05 


744.07 


761.79 


779.38 


796.94 


814.28 


831.10 


847.03 


49 


701.41 


720.19 


738.59 


756.59 


744.66 


792.59 


810.31 


827.49 


843.76 


859.09 


50 


713.95 


732.76 


751.26 


769.63 


787.96 


806.07 


822.64 


840.27 


855.95 


871.08 


51 


726.54 


745.47 


764.27 


783.03 


801.56 


819.53 


836.55 


852.60 


868.08 


883.27 


52 


739.30 


758.56 


777.77 


796.75 


815.16 


832.59 


849.02 


864.88 


880.44 


894.96 


53 


752.46 


772.16 


791.62 


810.49 


828.37 


845.21 


861.47 


877.43 


892.31 


904.46 


54 


766.17 


786.14 


805.51 


823.86 


841.14 


857.83 


874.20 


889.48 


901.95 


913.66 


55 


780.30 


800.20 


819.04 


836.80 


853.95 


870.77 


886.46 


899.27 


911.30 


922.06 


56 


794.52 


813.91 


823.17 


849.80 


867.10 


883.24 


896.41 


908.78 


919.84 




57 


808.42 


827.22 


845.37 


863.18 


879.79 


893.36 


906.09 


917.48 






58 


821.93 


840.64 


858.99 


876.11 


890.09 


903.21 


914.95 








59 


835.57 


854.51 


872.18 


886.60 


900.14 


912.25 










60 


849.72 


867.97 


882.87 


896.85 


909.36 












61 


863.46 


878.87 


893.33 


906.26 














62 


874.59 


889.56 


902.95 
















63 


885.52 


899.41 


















64 


895.61 





















TABLES. 



313: 



335. Reserve Values per $1000, Twenty-Payment Life 
Policies, American Experience, 3^/2 Per Cent. 





1st 


2d 


3d 


4th 


5th 


6th 


7th 


8th 


9th 


10th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 




$ 


$ 


S 


$ 


S 


$ 


$ 


S 


S 


$ 


20 


13.75 


28.65 


42.91 


58.36 


74.44 


91.16 


108.55 


126.64 


145.46 


165.03 


21 


14.05 


28.65 


43.84 


59.64 


76.07 


93.15 


110.92 


129.40 


148.61 


168.60 


22 


14.36 


29.29 


44.81 


60.96 


77.75 


95.21 


113.37 


132.24 


151.88 


172.30 


2a 


14.68 


29.95 


45.83 


62.33 


79.50 


97.34 


115.90 


135.19 


155.26 


176.12 


24 


15.02 


30.64 


46.88 


63.75 


81.30 


99.55 


118.51 


138.24 


158.75 


180.07 


25 


15.37 


31.35 


47.96 


65.22 


83.17 


101.82 


121.22 


141.39 


162.35 


184.14 


26 


15.73 


32.08 


49.07 


66.73 


85.09 


104.18 


124.01 


144.63 


166.06 


188.34 


27 


16.10 


32.84 


50.23 


68.30 


87.09 


106.61 


126.90 


147.98 


169.90 


192.67 


28 


16.49 


33.62 


51.42 


69.92 


89.15 


109.12 


129.87 


151.44 


173.85 


197.14 


29 


16.88 


34.43 


52.66 


71.60 


91.27 


111.71 


132.95 


155.01 


177.93 


201.74 


30 


17.30 


35.27 


53.94 


73.32 


93.46 


114.39 


136.12 


158.69 


182.12 


206.47 


31 


17.73 


36.14 


55.25 


75.11 


95.73 


117.15 


139.38 


162.47 


186.44 


211.33 


32 


18.17 


37.03 


56.61 


76.95 


98.06 


119.99 


142.74 


166.36 


190.88 


216.34 


33 


18.62 


37.94 


58.02 


78.85 


100.47 


122.91 


146.20 


170.36 


195.45 


221.48 


34 


19.09 


38.91 


59.47 


80.82 


102.95 


125.93 


149.76 


174.49 


215.00 


226.77 


35 


19.58 


39.90 


60.97 


82.83 


105.51 


129.03 


153.42 


178.73 


204.98 


232.19 


36 


20.08 


40.91 


62.51 


84.91 


108.13 


132.22 


157.19 


183.08 


209.92 


237.75 


37 


20.60 


41.96 


64.10 


87.05 


110.84 


135.50 


161.07 


187.55 


215.00 


243.42 


38 


21.13 


43.03 


55.73 


89.25 


113.63 


138.88 


165.04 


192.14 


220.19 


249.22 


39 


21.69 


44.15 


67.42 


91.53 


116.51 


142.36 


169.13 


196.83 


225.49 


255.13 


40 


22.25 


45.30 


69.17 


93.88 


119.46 


145.93 


173.31 


201.62 


230.88 


261.10 


41 


22.85 


46.50 


70.98 


96.30 


122.50 


149.59 


177.58 


206.49 


236.34 


267.13 


42 


23.46 


47.73 


72.83 


98.79 


125.61 


153.31 


181.91 


211.41 


241.84 


273.20 


43 


24.10 


49.00 


74.74 


101.33 


128.78 


157.10 


186.29 


216.37 


247.36 


279.28 


44 


24.74 


50.30 


76.68 


103.92 


131.99 


160.91 


190.69 


221.34 


252.89 


285.36 


45 


25.41 


51.63 


78.67 


106.54 


135.23 


164.74 


195.10 


226.31 


258.41 


291.42 


46 


26.09 


52.98 


80.68 


109.17 


138.47 


168.57 


199.49 


231.27 


263.90 


297.44 


47 


26.78 


54.35 


82.69 


111.81 


141.70 


172.39 


203.88 


236.19 


269.35 


303.39 


48 


27.48 


55.72 


84.70 


114.44 


144.93 


176.20 


208.24 


241.08 


274.74 


309.27 


49 


28.17 


57.07 


86.70 


117.05 


148.14 


179.97 


212.56 


245.91 


280.06 


315.06 


50 


28.87 


58.43 


88.70 


119.68 


151.35 


183.74 


216.84 


250.70 


285.33 


320.77 


51 


29.56 


59.80 


90.72 


122.30 


154.56 


187.48 


221.10 


255.44 


290.51 


326.38 


52 


30.27 


61.19 


92.74 


124.93 


157.75 


191.21 


225.33 


260.12 


295.62 


331.86 


53 


30.99 


62.58 


94.78 


127.56 


160.94 


194.93 


229.52 


264.75 


300.63 


337.23 


54 


31.71 


63.98 


96.82 


130.20 


164.14 


198.62 


233.67 


269.29 


305.54 


342.47 


55 


32.44 


65.40 


98.87 


132.85 


167.32 


202.29 


237.76 


273.77 


310.35 


347.56 



314 



FALLACIES OF LIFE INSURANCE. 





11th 


12th 


13th 


14th 


15th 


16th 


17th 


18th 


19th 


20th 


Age. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 


Year. 




$ 


S 


$ 


$ 


$ 


$ 


$ 


S 


$ 


S 


20 


185.39 


206.58 


228.62 


251.54 


275.39 


300.22 


326.05 


352.93 


380.91 


410.03 


21 


189.40 


211.03 


233.53 


256.94 


281.29 


306.63 


333.00 


360.43 


388.98 


418.69 


22 


193.54 


215.63 


238.61 


262.51 


287.38 


313.25 


340.15 


368.15 


397.29 


427.62 


23 


197.82 


220.38 


243.86 


268.27 


293.66 


320.06 


347.53 


376.11 


405.86 


436.81 


24 


202.24 


225.29 


249.27 


274.20 


300.13 


327.09 


355.13 


384.31 


414.67 


446.28 


25 


206.80 


230.35 


254.85 


280.31 


306.79 


334.32 


362.96 


392.75 


423.75 


456.00 


26 


211.50 


235.57 


260.59 


286.60 


313.65 


341.77 


371.01 


401.43 


433.08 


466.00 


27 


216.35 


240.94 


266.51 


293.08 


320.70 


349.42 


379.29 


410.35 


442.65 


476.26 


28 


221.33 


246.47 


272.59 


299.74 


327.96 


357.30 


387.79 


419.50 


452.47 


486.77 


29 


226.47 


252.16 


278.85 


306.59 


335.42 


365.38 


396.52 


428.88 


462.53 


497.52 


30 


231.75 


258.01 


285.29 


313.63 


343.07 


373.67 


405.45 


438.48 


472.81 


508.49 


31 


237.18 


264.02 


291.90 


320.85 


350.92 


382.15 


414.59 


448.28 


483.29 


519.67 


32 


242.76 


270.20 


298.68 


328.26 


358.95 


390.82 


423.91 


458.27 


493.95 


531.04 


33 


248.50 


276.53 


305.63 


335.82 


367.16 


399.67 


433.40 


468.42 


504.78 


542.58 


34 


254.38 


283.03 


312.74 


343.56 


375.52 


408.67 


443.04 


478.72 


515.77 


554.30 


35 


260.41 


289.67 


320.00 


351.44 


384.02 


417.79 


452.81 


489.15 


526.90 


566.15 


36 


266.57 


296.44 


327.39 


359.44 


392.64 


427.03 


462.69 


499.70 


538.14 


578.13 


37 


272.86 


303.35 


334.89 


367.54 


401.35 


436.37 


472.67 


510.34 


549.49 


590.22 


38 


279.27 


310.34 


342.48 


370.73 


410.14 


445.78 


482.72 


521.06 


560.90 


602.39 


39 


285.76 


317.42 


350.14 


383.98 


418.99 


455.24 


492.82 


531.82 


572.38 


614.63 


40 


292.31 


324.55 


357.85 


392.27 


427.87 


464.74 


502.94 


542.61 


583.89 


626.92 


41 


298.92 


331.72 


365.59 


400.59 


436.77 


474.23 


513.07 


553.41 


593.40 


639.24 


42 


305.54 


338.91 


373.34 


408.90 


445.66 


483.71 


523.17 


564.18 


606.90 


651.55 


43 


312.18 


346.09 


381.07 


417.18 


454.50 


493.14 


533.22 


574.89 


618.35 


663.83 


44 


318.80 


353.25 


388.75 


425.40 


463.28 


502.49 


543.18 


585.52 


629.73 


676.07 


45 


325.39 


360.35 


396.37 


433.55 


471.96 


511.74 


553.03 


596.04 


641.01 


688.24 


46 


331.91 


367.37 


403.90 


441.58 


480.51 


520.84 


562.73 


606.41 


652.15 


700.30 


47 


388.35 


374.31 


411.32 


449.48 


488.91 


529.77 


572.26 


616.61 


663.14 


712.23 


48 


344.71 


381.12 


418.59 


457.21 


497.13 


538.51 


581.58 


626.60 


673.92 


724.01 


49 


350.96 


387.80 


425.70 


464.76 


505.15 


547.02 


590.65 


636.34 


684.48 


735.60 


50 


357.08 


394.34 


432.64 


472.11 


512.92 


555.27 


599.45 


645.80 


694.78 


746.98 


51 


363.08 


400.71 


439.38 


479.23 


520.43 


563.23 


607.94 


654.95 


704.79 


758.13 


52 


368.93 


406.90 


445.91 


486.09 


527.65 


570.86 


616.07 


663.74 


714.47 


769.04 


53 


374.62 


412.90 


452.19 


492.66 


534.54 


578.13 


623.83 


672.15 


723.81 


779.72 


54 


380.15 


418.68 


458.20 


498.91 


541.06 


584.99 


631.15 


680.15 


732.81 


790.18 


55 


385.47 


424.20 


403.91 


504.80 


547.18 


591.40 


638.02 


687.73 


741.48 


800.48 



HOV 3 1913 



